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    Asset Valuation Corporate Bond

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    Ciza Inc. raised $100 million by floating corporate bonds. Each bond paid a coupon of 7% with a par value of $1000 and will mature in 4 years.

    a. Determine the current market value of the bond if the required rate of return is 14%.

    b. Holding everything constant and assuming that the coupon is paid on a semiannual basis, what is the intrinsic value of the bond to you?

    c. Assume annual coupon payments but 20 years remaining to maturity. What is the value of the bond?

    d. What is the bonds current yield?

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    Solution Preview

    a. Determine the current market value of the bond if the required rate of return is 14%.
    In a financial calculator, we input:
    FV = 1000
    coupon payment = 1000 * 7% = 70
    Number of years = 4
    Return rate = 14%
    Then we can compute the PV = 796.04
    (You can also use Excel "=-PV(14%,4,70,1000)")
    So the ...

    Solution Summary

    This solution calculates the values of bonds that pay a coupon of 7% with a par value of $1000 and is expected to mature in 4 years.

    $2.19

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