Question

6-7 What would you pay for a $145,000 debenture bond that matures in 15 years and pays $7,250 a year in interest if you wanted to earn a yield of: Click here to view factor tables

3%? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Amount to Pay $enter a dollar amount to pay rounded to 0 decimal places

4%? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Amount to Pay $enter a dollar amount to pay rounded to 0 decimal places

5%? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Amount to Pay $enter a dollar amount to pay rounded to 0 decimal places

Answer 1

Annual Coupon = $7,250
Maturity Value = $145,000
Time to Maturity = 15 years

Answer a.

Annual Yield = 3.00%

Amount Paid = $7,250 * PVA of $1 (3.00%, 15) + $145,000 * PV of $1 (3.00%, 15)
Amount Paid = $7,250 * 11.93794 + $145,000 * 0.64186
Amount Paid = $179,620

Answer b.

Annual Yield = 4.00%

Amount Paid = $7,250 * PVA of $1 (4.00%, 15) + $145,000 * PV of $1 (4.00%, 15)
Amount Paid = $7,250 * 11.11839 + $145,000 * 0.55526
Amount Paid = $161,121

Answer c.

Annual Yield = 5.00%

Amount Paid = $7,250 * PVA of $1 (5.00%, 15) + $145,000 * PV of $1 (5.00%, 15)
Amount Paid = $7,250 * 10.37966 + $145,000 * 0.48102
Amount Paid = $145,000