a) | Case A : Market Rate Of Return :8% | |||||||
When market rate of return is equal to the coupon interest rate of the bond, | ||||||||
the bond issue price is equal to face value of the bond. | ||||||||
Therefore bond price = $800000 | ||||||||
b) | Case B= Interest rate 6% | |||||||
Bond Price = Present Value Of Interest Payments + Present Value Of Redemption Amount | ||||||||
= P[1-(1+)^-n]/r + Redemption Amount * (1/(1+r)^n | ||||||||
Where, | ||||||||
P= Periodic payment, here interest 800000*8%*6/12=$32000 | ||||||||
r= interet rate i.e. 6%*6/12 = 3% | ||||||||
n= number of periods i.e. 4*2= 8 | ||||||||
= 32000[1-(1+0.03)^-8]/0.03 + 800000*1/(1+0.03)^8 | ||||||||
=224630.15 +631527 | ||||||||
$ 8,56,157.54 | ||||||||
Case C | Market Interest Rate 10% | |||||||
Bond Price = Present Value Of Interest Payments + Present Value Of Redemption Amount | ||||||||
= P[1-(1+)^-n]/r + Redemption Amount * (1/(1+r)^n | ||||||||
Where, | ||||||||
P= Periodic payment, here interest 800000*8%*6/12=$32000 | ||||||||
r= interet rate i.e. 10%*6/12 = 5% | ||||||||
n= number of periods i.e. 4*2= 8 | ||||||||
= 32000[1-(1+0.05)^-8]/0.05 + 800000*1/(1+0.05)^8 | ||||||||
=206822.81 +541471.49 | ||||||||
$ 7,48,294.30 | ||||||||
Feel Free To Discuss Queries. Please Rate | ||||||||
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