Homework Answers
| Par value of Bonds | 16000 | ||||
| Semi annual periods | (7*2) | 14 | |||
| Market rate of interest | 10% | ||||
| Annuity PVF for 14 periods at 5% | 9.89864 | ||||
| PVF at 14th period at 5% | 0.505068 | ||||
| Let, Semi annual cash interest be x | |||||
| Present value of maturity value | 8081.088 | ||||
| Present value of Interest payments | 9.89864 x | ||||
| Price | 8081.09 + 9.89864 x | ||||
| As per given in question, issue price is $ 11882.17 | |||||
| Therefore, equation is as under: | |||||
| 11882.17 = 8081.09 + 9.89864 x | |||||
| 9.89864x = 3801.08 | |||||
| x =384 | |||||
| Semi annual cash interest = 384 | |||||
| Annualised Interest = 384 *2 = 768 | |||||
| Coupon rate of Interest = 768 /16000*100 = 4.80% | |||||
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