Question

g. How does the equation for valuing a bond change if semiannual payments are made? Find the value of a 10-year, semiannual payment, 10% coupon bond if the nominal rd 13%. Ehrhardt, Michael C.. Corporate Finance: A Focused Approach (p. 236). Cengage Learning. Kindle Edition.

Answer 1

$834.73

Step-by-step explanation:

the market value of the bonds is calculated by adding the present value of its maturity value (face value) + the present value of its coupon payments. The discount rate will be the market rate instead of the coupon rate:

PV of face value = $1,000 / (1 + 6.5%)²⁰ = $283.80

PV of coupon payments = $50 x 11.01851 (PV annuity factor, 6.5%, 20 periods) = $550.93

the bond's market value = $283.80 + $550.93 = $834.73