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Finance problems: Bond valuation, NPV.

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Please help with the following finance-related problems.

You are asked to appraise the bonds of Galardi & Griffin Corporation. The $1,000 par value bonds have a stated annual interest rate of 13 percent, and interest is paid semiannually. Based on current market conditions, the yield to maturity of the bonds is 12% per year. There are 15 years to maturity.

1. Compute the price of the bonds based on semiannual analysis.

2. With 10 years remaining to maturity, if the yield to maturity goes up substantially to 14%, what will be the new price of the bonds?

b. Compute the NPV of a $1,000,000 investment that is expected to generate the following cash flows. The cost of capital is 10%.

Year 1: $100,000
Year 2: $400,000
Year 3: $500,000
Year 4: $300,000
Year 5: ($100,000)

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Solution Summary

The problem set deals with calculating the net present value of an investment and the price of a semi-annual bond. The problem is given in an Excel spreadsheet.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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