Question

3.Consider Fulton Manufacturing Company's 8.75 percent bonds that mature on April 15, 2028. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a $1,000 denomination Fulton bond as of April 15, 2016, to an investor who holds the bond until maturity and whose required rate of return is:

explain

3.Consider Fulton Manufacturing Company's 8.75 percent bonds that mature on April 15, 2028. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a $1,000 denomination Fulton bond as of April 15, 2016, to an investor who holds the bond until maturity and whose required rate of return is:

9 percent

Answer 1

The Value of the Bond

• The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
• The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
• Here, the calculation of the Bond Price using financial calculator is as follows

Variables	Financial Calculator Keys	Figures
Par Value/Face Value of the Bond [$1.000]	FV	1,000
Coupon Amount [$1,000 x 8.75%]	PMT	87.50
Market Interest Rate or Yield to maturity on the Bond [9.00%]	1/Y	9.00
Maturity Period/Time to Maturity [April 15, 2016 to April 15, 2028]	N	12
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $982.10.

“Hence, the Value of the Bond will be $982.10”