Question

Determine the price of a 200,000 bond issue under the following idependent assumptions:

Maturity Interest paid Stated Rate Effective rate

a. 10 years annually 10% 12%
b. 10 years semiannually 10% 12%
c. 20 years semiannually 12% 12%

Answer 1

1. Price of bond = $177,399.11

2. Price of bond = $177,060.16

3. Price of bond = $200,000

Step-by-step explanation:

1) Price of Bond = pv(rate,nper,pmt,fv)

rate =12%

nper = 10

pmt (Coupon Amount) = 10%*200,000 = 20,000

fv = 200,000

Price of Bond = pv(12%, 10, 20,000, 200,000)

Price of Bond = $177,399.11

2) Price of Bond = pv(rate,nper,pmt,fv)

rate =12%*1/2 = 6%

nper = 10 *2 = 20

pmt (Coupon Amount) = 10% * 200,000 * 1/2 = 10,000

fv = 200,000

Price of Bond = pv(6%, 20, 10,000, 200,000)

Price of Bond = $177,060.16

3) Price of Bond = pv(rate,nper,pmt,fv)

rate =12%*1/2 = 6%

nper = 20 *2 = 40

pmt (Coupon Amount) = 12%*200,000*1/2 = 12,000

fv = 200,000

Price of Bond = pv(6%, 40, 12,000, 200,000)

Price of Bond = $200,000