Question

Problem 3 (10 points): FIN300 Inc. recently issued non-callable, semi-annually paying bonds that mature in 15 years. They have a par value of $1,000 and an annual coupon of 5.5%. If the current market interest rate is 6.0%, at what price should the bonds sell?

Can you also include the formulas as well

Answer 1

Q3.
Annuity PVF at 3% for 30 periods					19.60044
PVF at 3% for 30th period					0.411987
Par value of bonds					1000
Semi Annual Cash interest(1000*5.50%*6/12)					27.5
Present value of Maturity					411.987
Present value f Interest					539.0121
Price of Bonds					951
Q4.
Annuity PVF at 4.58% for 40 periods					18.40158
PVF at 4.58% for 40th period					0.171929
Par value of bonds					1000
Semi annual cash interest					x
Present value of Maturity					171.929
Present value f Interest					18.40158 x
Price of Bonds					171.929+18.40158x
As per given in Question, the price of bonds is $ 985. Hence, the equation is:
985 = 171.929+ 18.40158 x
x= 44.185
Semi annual interest = 44.185
Annualised Interest = 44.185*2 = 88.37
Annual coupon interest rate = 88.37 /1000*100 = 8.837%