Question 1 A. IBM issued a 30-year bond in 1999 with a coupon rate of 5%....

Question

Question

Question 1 A. IBM issued a 30-year bond in 1999 with a coupon rate of 5%....

Question 1

A. IBM issued a 30-year bond in 1999 with a coupon rate of 5%. Face value of the bond is $1,000 and interest is paid semiannually. Based on the risk of the bond, investors require 8% return (RRR) on bond. when does the bond mature?

B. Compute the value of the IBM bond today. Show all computations.

C. How much of the bond price in Question B is due to coupon interest and how much due to the face value?

D. If the RRR on the bond increase to 10%, and everything elseremain the same, what will happen to the value of the bond? Why? (No computation necessary)

business finance

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Answer 1

Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

А В с 1 2 Face value of bond 1000 5% Coupon rate Coupon frequency in a year Required rate of return Years to maturity 4 2 8%

Cell reference -

A В 1 2 Face value of bond 1000 3 Coupon rate 0.05 Coupon frequency in a year 4 2 Required rate of return 0.08 Years to matur

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

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Answer 2

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