A bond that matures in 17 years has a $1 000 par value. The annual coupon interest rate is 14 percent and the market's required yield to maturity on a comparable-risk bond is 17 percent.
What would be the value of this bond if it paid interest annually? ______
What would be the value of this bond if it paid interest semiannually? _______
Calculation for annual interest payment:
Par value is $1000
Time period is 17 years
Annual coupon rate is 14%
Annual coupon payment =(Coupon rate)*(Par
value)=(14%)*(1000)=140
Yield to maturity=17%
We can determine the present value using excel as:
Answer: If the interest is paid annually, then the
value of the bond will be equal to $835.76.
Calculation for semiannual interest payment:
Par value is $1000
Time period is 17 years, as the interest is paid semiannually, the
number of periods=17*2=34
Semi annual coupon payment=(Annual coupon
payment)/2=140/2=70
Annual yield to maturity=17%
Semiannual yield to maturity=17%/2=0.085
We can determine the present value using excel as:
Answer: If the interest is paid semi annually, then the value of the bond will be equal to $834.55
A bond that matures in 17 years has a $1 000 par value. The annual coupon...
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