Question

Bond valuation Annual interest Calculate the value of the bond shown in the following table, assuming it pays interest annually. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Years to maturity Par value $1,000 Coupon interest rate 16% Required return 16% The value of the bond is $ . (Round to the nearest cent.)

Answer 1

We have solved the question by both financial calculator and formula.

Bond value = $1,000.00

Using financial calculator BA II Plus - Input details:	#
I/Y = R = Rate or yield / frequency of coupon in a year =	16.000000
PMT = Coupon rate x FV / frequency =	-$160.00
N = Number of years remaining x frequency =	9.00
FV = Future Value =	-$1,000.00
CPT > PV = Present value of bond = Price of Bond = Current value of bond =	$1,000.00
Formula for bond value: PV = |PMT| x ((1-((1+R%)^-N)) / R%) + (|FV|/(1+R%)^N) =
PV = (160* ((1-(1+0.16)^-9)/0.16) + 1000/(1+0.16)^9)	$1,000.00

Note: When Coupon rate = Expected rate or YTM , Bond market value = Face Value (We don’t need calculation for such cases

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