Question

ond valuation Semiannual interest Calculate the value of each of the bonds shown in the following table, all of which pay interest miannually. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Bond Coupon Interest rate 11% Years to maturity Required stated annual return 7% Par Value $1,000 500 500 14 15 14 The value of bond Ais $ The value of bond B is $ The value of bond is $ . (Round to the nearest cent.) . (Round to the nearest cent.) (Round to the nearest cent.)

Answer 1

Given that the interest payment is made semiannually, it means:

Bond A:
Semiannual coupon interest rate=11%/2=0.055
Semiannual coupon payment=(Semiannual coupon interest rate)*(Par value)=0.055*1000=55
Time period=8 years
When the interest payment is made semiannually, the number of periods=8*2=16
Required stated annual return=7%
Semiannual return=7%/2=0.035

Bond B:
Semiannual coupon interest rate=14%/2=0.07
Semiannual coupon payment=(Semiannual coupon interest rate)*(Par value)=0.07*500=35
Time period=20 years
When the interest payment is made semiannually, the number of periods=20*2=40
Required stated annual return=13%
Semiannual return=13%/2=0.065

Bond C:
Semiannual coupon interest rate=15%/2=0.075
Semiannual coupon payment=(Semiannual coupon interest rate)*(Par value)=0.075*500=37.5
Time period=4 years
When the interest payment is made semiannually, the number of periods=4*2=8
Required stated annual return=14%
Semiannual return=14%/2=0.07

F Bond B A 1 Bond A 2 Par value 1000 3 Payment 55 4 Number of periods 5 Required return 0.035 6 Present value= ($1,241.88) 7 Formula used: PV(B5,B4,B3,B2) 16 Par value Payment Number of periods Required return Present value= Formula used: 8 500 35 40 0.065 ($535.36) PV(E5,E4,E3,E2) Bond C Par value 500 Payment 37.5 Number of periods Required return 0.07 Present value= ($514.93) Formula used: PV(H5, H4, H3, H2)

Present value of bond A is $1,241.88
Present value of bond B is $535.36
Present value of bond C is $514.93