Question

Bond valuation—Semiannual interest Find the value of a bond maturing in 9 years, with a $1,000 par value and a coupon interest rate of 14% (7% paid semiannually) if the required return on similar-risk bonds is 14% annual interest (7% paid semiannually). 

The present value of the bond is $_______ 

Answer 1

Cash Inflow Per Half Year = $ 1000 * 7% = $70

Rate of PVIF = 14/2 = 7% ( because compounding semiannually)

total no of years = 18 because compounding Semiannually

Year	Cash Inflow	PVIF 7%	Present Value of Cash Inflow
	(A)	(B)	C= A*B
1	$70	0.9346	65.42
2	$70	0.8734	61.14
3	$70	0.8163	57.14
4	$70	0.7629	53.40
5	$70	0.7130	49.91
6	$70	0.6663	46.64
7	$70	0.6227	43.59
8	$70	0.5820	40.74
9	$70	0.5439	38.08
10	$70	0.5083	35.58
11	$70	0.4751	33.26
12	$70	0.4440	31.08
13	$70	0.4150	29.05
14	$70	0.3878	27.15
15	$70	0.3624	25.37
16	$70	0.3387	23.71
17	$70	0.3166	22.16
18	$70	0.2959	20.71
18	$1,000	0.2959	295.90
	TOTAL		$1,000

Value of Bond = $1000 proved

Alternatively Ans is

When Risk free rate and Interest/coupon Rate is Same then Value of Bond is always equal to its Face Value , In this Case ie $ 1000