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Calculating the value of a bond

Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value.

a. Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What would be the bond's value?
b. Suppose that two years after the bonds were issued, the required interest rate rose to 13 percent. What would be the bond's value?
c. What would be the value of the bonds three years after issue in each scenario above, assuming that interest rates stayed steady at either 7 percent or 13 percent?

Solution Preview

Please refer attached file for better clarity of functions in MS Excel.

a. Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What would be the bond's value?

Coupon amount=PMT=1000*12%=$120
Number of coupon payments left=NPER=8
Required interest rate=RATE=7%
Maturity amount=FV=$1,000
Bond value can be found by ...

Solution Summary

Solution describes the steps to calculate the value of a coupon bond in the given scenarios. Calculations are carried out with the help of functions in MS Excel.

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