What is the value of a bond that has a par value of $1,000, a coupon...

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What is the value of a bond that has a par value of $1,000, a coupon...

What is the value of a bond that has a par value of $1,000, a coupon rate of 9.75 percent (paid annually), and that matures in 22 years? Assume a required rate of return on this bond is 12.84 percent

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Answer 1

Answer #1

Annual coupon=$1000*9.75%=$97.5

Hence value of bond=Annual coupon*Present value of annuity factor(12.84%,22)+$1000*Present value of discounting factor(12.84%,22)

=$97.5*7.242093309+$1000*0.070115219

=$776.22(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$97.5[1-(1.1284)^-22]/0.1284

=$97.5*7.242093309

2.Present value of discounting factor=$1000/1.1284^22

=$1000*0.070115219

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Answer 2

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