The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual

Question

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.

What will be the value of each of these bonds when the going rate of interest is 6%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.

What will be the value of each of these bonds when the going rate of interest is 9%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.

What will be the value of each of these bonds when the going rate of interest is 11%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.

Explanation / Answer

solution:

Interest payment =$100

Maturity amount =$1000

No of years : Bonds L= 15 years, Bonds S = 1 year

a) rate of interest =6%

Value of Bond L = $100*9.7122 + $1000*0.4173= $1388.52

Value of Bond S=$100*0.9434 + $1000*0.9434= $1037.74

b) rate of interest= 9%

Value of Bond L= $100*8.0607 + $1000*0.2745= $1080.57

Value of Bond S= $100*0.9174 + $1000*0.9174= $1009.14

C) rate of interest = 11%

Value of Bond L =$100*7.1909 + $1000*0.2090= $928.09

Value of Bond S = $100*0.9009 + $1000*0.9009= $990.99

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.