Question

Cocopedia Inc. is planning to issue bonds that will pay 6% semiannual interest and mature in 10 years.

a. How much will investors be willing to pay for a $1,000 bond if the prevailing market yield rate is 4%? Use the Excel function.

b. How much will investors be willing to pay for a $1,000 bond if the prevailing market interest rate is 8%? Use the Excel function.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 2 3 Part a) * ((1-(1+i)^-n)/i)+(facevalue/(1+i)^n) 4 Price of Bond (semmiannual interest payment 5 ((1000*3%)*((1-(1.02)^-20)/.02)+(1000/(1.02)^20) 6 =490.543 +672.9713 -1163.51 (rounded off to 2 decimal places) 7 Thus the correct answer is $ 1163.51 9 10 11 Part b) 12 Price of Bond = (semmiannual interest payment* (1-(1+i)^-n)/i}+(facevalue/(1+i)^n) 13 ((1000*3%)*((1-(1.04)^-20)/.04)+(1000/(1.04)^20) 14407.7098 +456.3869 15$864.10 (rounded off to 2 decimal places) 16 17 Thus the correct answer is $ 864.1 10 N