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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

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