Question

Assumes Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value. What would be the bonds value?

Choice: $750

Choice: $1,000

Choice: $1,500

Choice: $2,000

Assume that two years after the Venture Healthcare bonds (ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value) were issued, the required interest rate fell to 7%. What would be the bonds value?

Choice: $750.98

Choice: $1,000.00

Choice: $1,298.56

Choice: $1,457.30

Assume that two years after the Venture Healthcare bonds (ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value) were issued, the required interest rate fell to 13%. What would be the bonds value?

Choice: $887.24

Choice: $952.01

Choice: $1,000.00

Choice: $1,357.40

Answer 1

Solution 1:

As market rate of interest is equal to coupon rate therefore bond value = $1,000

Hence 2nd option is correct.

Solution 2:

Computation of bond price
Table values are based on:
n=	8
i=	7.00%
Cash flow	Table Value	Amount	Present Value
Interest (Annuity)	5.97130	$120.00	$716.56
Maturity value	0.58201	$1,000.00	$582.01
Price of bonds			$1,298.56

Hence 3rd option is correct.

Solution 3:

Computation of bond price
Table values are based on:
n=	8
i=	13.00%
Cash flow	Table Value	Amount	Present Value
Interest (Annuity)	4.79877	$120.00	$575.85
Maturity value	0.37616	$1,000.00	$376.16
Price of bonds			$952.01

Hence 2nd option is correct.