Explore BrainMass
Share

Present value bond calculation

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

You are the owner of 100 bonds issued by Euler, Ltd. These bonds have 8 years remaining to maturity, an annual coupon payment of $80, and a par value of $1,000. Unfortunately, Euler is on the brink of bankruptcy. The creditors, including yourself, have agreed to a postponement of the next 4 interest payments (otherwise, the next interest payment would have been due in 1 year). The remaining interest payments, for Years 5 through 8, will be made as scheduled. The postponed payments will accrue interest at an annual rate of 6 percent, and they will then be paid as a lump sum at maturity 8 years hence. The required rate of return on these bonds, considering their substantial risk, is now 28 percent. What is the present value of each bond?

© BrainMass Inc. brainmass.com October 16, 2018, 6:59 pm ad1c9bdddf
https://brainmass.com/economics/bonds/present-value-bond-calculation-101328

Solution Preview

The present value is $266.88.

To solve, first find the compounded value at Year 8 of the postponed ...

$2.19
Similar Posting

Present Value of Bond Calculation

Given a 5 year instrument with a face value amount of $1000 an annual interest rate of 9%, with semiannual interest payments and repayment at the end of 5 years, set up the calculation of the PV of cash flows at 11% yield. Would the value of this note be greater than, less than or equal to $1000? Why?
**Please write out formula manually or attach versus excel calculation.

View Full Posting Details