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Estimating the current value of given assets

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P6-25 Bond valuation-Semiannual interest. Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually.

Bond Par Value Coupon interest rate Year to maturity Required annual return
A $1,000 10% 12 8%
B 1,000 12 20 12
C 500 12 5 14
D 1,000 14 10 10
E 100 6 4 14

P6-16 Bond valuation-Annual Interest. Calculate the value of each of the bonds shown in the following table, all of which pay interest annually.

Bond Par Value Coupon Interest Rate Year to Maturity Required Return
A $1,000 14% 20 12%
B 1,000 8 16 8
C 100 10 8 13
D 500 16 13 18
E 1,000 12 10 10

P6-20 Yield to maturity. State whether the price of the bond will be a premium to par, at par, or at a discount to par.
Bond Coupon interest rate Yield to maturity Price
A 6% 10%
B 8 8
C 9 7
D 7 9
E 10 10

P6-13 Valuation of assets. Using the information provided in the following table, find the value of each assets.
Cash Flow
Asset End of Year Amount Appropriate required return Value
A 1 $5,000 18%
2 5,000
3 5,000
B 1 thru ..... $300 15%
C 1 $0 16%
2 $0
3 $0
4 $0
5 35,000
Total
D 1 thru 5 $1,500 12%
6 8,500
E 1 $2,000 14%
2 3,000
3 5,000
4 7,000
5 4,000
6 1,000

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P6-25

Bond A
Par Value=P=$1000
Semiannual interest=C=1000*10%/2=$50
Number of coupon payments=n=12*2=24
Required rate of return=r=8%/2=4% per half year
Value of bond= C/r*(1-1/(1+r)^n)+P/(1+r)^n=50/4%*(1-1/(1+4%)^24)+1000/(1+4%)^24=$1152.47

Bond B
Par Value=P=$1000
Semiannual interest=C=1000*12%/2=$60
Number of coupon payments=n=20*2=40
Required rate of return=r=12%/2=6% per half year
Value of bond= C/r*(1-1/(1+r)^n)+P/(1+r)^n=60/6%*(1-1/(1+6%)^40)+1000/(1+6%)^40=$1000

Bond C
Par Value=P=$500
Semiannual interest=C=500*12%/2=$30
Number of coupon payments=n=5*2=10
Required rate of return=r=14%/2=7% per half year
Value of bond= C/r*(1-1/(1+r)^n)+P/(1+r)^n=30/7%*(1-1/(1+7%)^10)+500/(1+7%)^10=$464.88

Bond D
Par Value=P=$1000
Semiannual ...

Solution Summary

Solution describes the steps to find out the current value of given securities/assets.

$2.19