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Samle thinking about buying a bond for investment purposes. The one he is looking at has a face value 4000 a coupon rate of 6
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Answer #1

rate positively ..

Ans 1) Present value of face value     501.87
present value = 1000/(1+9%)^8
Ans = $ 501.87
Ans 2) Present value of coupon strem
we have to use financial calcualtor to solve this
put in calculator
FV 0
PMT 1000*6.5% -65
I 9%
N 8
Compute PV $359.76
Ans = $359.76
Ans 3) Total value = 501.87+359.76= $861.63
Ans= $861.63
Ans 4) This means bond is being charged for 1000*92% = 920
Ans 5) We should NOT buy the bond . As its intrensic price is lower than the current price.
Ans = Not to buy
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