Question

A bond that matures in 12 years has a $1,000 per value. The annual interest rate is 12 percent and the market's yield to maturity on a comparable-risk bond is 14 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid if it paid interest semiannually?w

Answer 1

bond - Calculation of value of Time te maturity (in years) = 12 Annual Rate of ginterest (8)= 12% Yeld to matunity = 14% Annual Coupon conterest) payment = $120 (12) d $1000) Par value x besent value factor Vare of bond = Coupon Paymentax Present vakee annuity + factor = 120x PUAF(141, 120 + 1000X PVF (14.%.012) 120x 5.6602921 + 1000x 0.2075591 679.235 + 207559 = $ 986.79 If payments of interest are made semiannually, coupon payment = 120 = $60 Tenure (m) = 12x2 = 24 Time 14.); = 7 value of Bond = $60X PUAF G., 24) + + 1000X PUF (7./24) + 1000x 0.197146 = 60X 11.46933 = 688.16 +197.146 | $885.31 fator PUAF = present value annuity PVF - Besent value factor

Answer 2

a bond that matures in 12 years has a par value $1000, an annual coupon of 10 percent, and a market interest rate of 8 percent.what is its price? solution