Question

•Mills Company, a large defense contractor, on January 1, 2016, issued a 10% coupon interest rate, 6-years bond with a $1,000 par value that pays interest annually and required return 8%. What is the bond value?

Answer 1

Page No. Date : The annual interest payment 1000 X 100% At the end of $100 the bond holder years recieves $100 interest payment and thie $1000 par value the 4.623 Present value Interest x PVAF, value The Present value of the interest payment obtained using present value annuity factor or PvArfor 8% and 6 payments. The PVAF of 8% and 6payments Therefore, +(8%, 6) 100 x 4.623 Ś 462.3 The present of the $1000 peccucipal ropayment is obtained by using the present value, single payment factor for 8% for 6 years. PVF of 8% and 6 years Therefore, Present Value $1000 x Therefore The Bood's Value 462.3+ 630 O-630 The PVP of Amount & pur (8% 6) 0.630 630 $ 1092.3

You can obtain the value of the bond by adding both the values of interest as well as the initial amount which in this case is 462.3 and 630 and hence the value of the bond is $1092.3