Final answer:
The value of Flower Valley Company bonds is calculated by determining the present value of future semiannual coupon payments along with the present value of the par value at maturity, considering the investor's required rate of return of 11.65 percent.
Step-by-step explanation:
The value of Flower Valley Company bonds with a coupon rate of 9.79 percent, semiannual interest payments, a par value of $1,000, and a maturity of 3 years, when investors' required rate of return is 11.65 percent can be calculated using the present value of annuities and the present value of a lump sum.
To calculate, we must find the present value of the semiannual coupon payments and the present value of the par value at maturity. The semiannual coupon payment is calculated by dividing the annual coupon rate by two and multiplying this by the par value. In this case, it would be ($1,000 * 9.79%)/2 = $48.95 per period. There are 6 periods because interest is paid semiannually over 3 years. The present value of these annuity payments can be found using the formula for the present value of an annuity:
Present value of annuity = C * [(1 - (1 + r)^-n)/r]
where C is the coupon payment, r is the required rate of return per period, and n is the total number of periods.
The present value of the par value is calculated as:
Present value of par = Par Value / (1 + r)^n
Adding the present value of the annuity payments and the present value of the par value gives us the value of the bond.