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    Value of Company Bonds with Interest Rates

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    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.

    $2.19

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