# Value of Company Bonds with Interest Rates

XYZ Company is planning to issue some bonds. The bonds,with a $5000.00 par value and the coupon rate of 12%,will mature in 10 years. The interest will be paid semiannually.

a) What would be the value of each bond when issued if the marlet interest rate is 12%

b) Suppose two years later from the original issuing date, the going rate in the market went down 8%. What would be the price of this bond at this time

c) Same as "B" except that market rate went up to 16%. What would the value of the bond be in this case

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#### Solution Preview

a) What would be the value of each bond when issued if the marlet interest rate is 12%

To calculate the price 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

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

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

Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

Price of bond

Coupon rate= 12.000%

Face value= 5000

Payment S Semi Annual

No of years to maturity= 10

No of Periods= 20

Discount rate annually= 12.00% annual

Discount rate per period= 6.00%

n= 20 periods

r= 6.00% per period

Interest payment per ...

#### Solution Summary

Calculates price of bonds at different market interest rates.