Question 5 2 pts Answer the question. Thai Savings Bank issues 100,000 bonds as

Question

Question 5 2 pts Answer the question. Thai Savings Bank issues 100,000 bonds as a response to the Thai Central Bank's initiatives to increase domestic saving. The bonds have a face value of $40,000 each, a bond interest rate of 8% per year payable annually, and a maturity date of 14 years. What is the current price of a bond, if the market interest rate is 9% per year, compounded semiannually? Fill in the blanks below that can be used to solve the problem: (HINT: represent your answer as a percentage value (not a decimal value), but skip % sign) Present worth of the bond40,000 (P %*40,000 (P/

Explanation / Answer

CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY Step 1 : Calculation of Semi Annual Coupon Payments Par value of the bond issued is   = $40,000 Annual Coupon % 8.00% Annual Coupon Amount $3,200.00 Semi Annual Coupon Amount $1,600.00 Step 2: Calculate number of years to Maturity Number of years to maturity = 14 years Interest is paid semi annyally so total period = 14 Years * 2 = 28 Periods Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds Market rate of interest or Yield to Maturity or Required Return = 9% Bonds interest is paid semi annualy means so discounting factor = 9 % /2= 4.5 % PVF = 1 / Discount rate = 1/ 1.045 Result of above will again divide by 1.045 , repeat this lat period Period Interest Amount (In Million) PVF @ 4.5% PresentValue 1 Interest $1,600.00                     0.9569 $1,531.10 2 Interest $1,600.00                     0.9157 $1,465.17 3 Interest $1,600.00                     0.8763 $1,402.07 4 Interest $1,600.00                     0.8386 $1,341.70 5 Interest $1,600.00                     0.8025 $1,283.92 6 Interest $1,600.00                     0.7679 $1,228.63 7 Interest $1,600.00                     0.7348 $1,175.73 8 Interest $1,600.00                     0.7032 $1,125.10 9 Interest $1,600.00                     0.6729 $1,076.65 10 Interest $1,600.00                     0.6439 $1,030.28 11 Interest $1,600.00                     0.6162 $985.92 12 Interest $1,600.00                     0.5897 $943.46 13 Interest $1,600.00                     0.5643 $902.83 14 Interest $1,600.00                     0.5400 $863.96 15 Interest $1,600.00                     0.5167 $826.75 16 Interest $1,600.00                     0.4945 $791.15 17 Interest $1,600.00                     0.4732 $757.08 18 Interest $1,600.00                     0.4528 $724.48 19 Interest $1,600.00                     0.4333 $693.28 20 Interest $1,600.00                     0.4146 $663.43 21 Interest $1,600.00                     0.3968 $634.86 22 Interest $1,600.00                     0.3797 $607.52 23 Interest $1,600.00                     0.3634 $581.36 24 Interest $1,600.00                     0.3477 $556.33 25 Interest $1,600.00                     0.3327 $532.37 26 Interest $1,600.00                     0.3184 $509.44 27 Interest $1,600.00                     0.3047 $487.51 28 Interest $1,600.00                     0.2916 $466.51 28 Bond Principal Value $40,000.00                     0.2916 $11,662.83 Total $36,851.43 Current Bonds Price = $36,851.43 SIMULTANEOUSLY WE CAN SOLVE WITH BELOW MEHTOD OR Cumulative value of $ 1 @ 4.5% in 14 Years Interest 1600                             15.7429               25,188.60 Par Value at 28th Period 40000                               0.2916               11,662.83 Current Bonds Price               36,851.43

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