# Bond Prices

Assume the following information for an existing bond that provides annual coupon payments:

Par value = $1,000

Coupon rate = 11%

Maturity = 4 years

Required rate of return by investors = 11%

a. What is the present value of the bond?

b. If the required rate of return by investors were 14% instead of 11%, what would be the present value of the bond?

c. If the required rate of return by investors were 9%, what would be the present value of the bond?

https://brainmass.com/business/bond-valuation/bond-prices-254938

#### Solution Preview

Assume the following information for an existing bond that provides annual coupon payments:

Par value = $1,000

Coupon rate = 11%

Maturity = 4 years

Required rate of return by investors = 11%

a. What is the present value of the bond?

If the coupon rate = required rate of return, the present value (price) of the bond= par value = $ 1000

Calculating Present Value of bond

To calculate the present value of the bond we need to calculate / read from tables the values of

PVIF= Present Value Interest Factor

PVIFA= Present Value Interest Factor for an Annuity

Present Value of bond= PVIF * Maturity value + PVIFA * interest payment per period

PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%

PVIF( n, r%)= =1/(1+r%)^n

Data

No of years to ...

#### Solution Summary

Bond price at different required rates of return have been computed.