The Petty and Campbell company bond has an annual coupon rate of 6.80%, pays interest semi-annually,...
The Petty and Campbell company bond has an annual coupon rate of 6.80%, pays interest semi-annually, and has a face value of $1,000. If there are 22 years to maturity and your required rate of return on bonds of this risk level is 6.00%, what is the bonds value to you? (with this problem solve for its present value and show all work with the formula)
Please show all formulas and work!
Homework Answers
Number of periods = n = 22*2 = 44 semiannual periods
Yield I/Y= 6%/2 = 3% or 0.03
Semiannual Payment PMT = 6.80%*1000/2 = $34
Face Value FV = $1000
Hence, PV = PMT[1 - (1+r)-n]/r + FV/(1+r)n = 34(1 - 1.03-44)/0.03 + 1000/1.0344 = $1097.02
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