Question

Bonds are a long-term debt for corporations. By buying a bond, the bond-owner lends money to the corporation. The borrower promises to pay specified interest rate during the loans lifetime and at the maturity, payback the entire principle. In case of bankruptcy, bondholders have priority over stockholders for any payment distributions. Bonds = Debt...............Bondholders = Lenders Stock=Equity................Stockholders = OwnersCalculation: For purposes of this exercise, assume that UPS issues a new ten-year bond for 100,000 that will mature in 2027. The Future Value of this bond is therefore $100,000. The bond was issued in December 2017 at an annual rate of 5.0% fixed for 10 years, with interest payments made semi-annually. What is the Present Value of this bond using the three scenarios in Part II: Bond Issuance

PART II: BOND ISSUANCE
	Newly issued 10-year bond		Calculate the Present Value in the three scenarios below
	Present Value	PV
	Periods	N		Semi-annual payment: 2017-2027 = 10 years *2 = 20 periods
	Interest	I		Interest paid semi-annually: 5.00%/2 = 2.5%
	Payments	PMT		This bond make regular semi-annual payments of interest.
	Future Value	FV		Future Value in 20 years - Enter as a positive number
1. The new value of the bond if overall rates in the market increased by 2%
	Present Value	PV
	Periods	N
	Interest	I		Please adjust interest		%+2% = .00%/2 = %
	Payments	PMT
	Future Value	FV
2. The new value of the bond if overall rates in the market decreased by 2%
	Present Value	PV
	Periods	N
	Interest	I		Please adjust interest		.00%-2% = %/2 = %
	Payments	PMT
	Future Value	FV		CALCULATING PV (see help on the right hand side of the sheet)
3. The value of the bond if overall rates in the market stayed exactly the same
	- identical to CURRENT BOND VALUE from Financial Statements

Answer 1

for formulas and calculations, refer to the next image -