Question

BSW Corporation has a bond issue outstanding with an annual coupon rate of 7.6 percent paid quarterly and four years remaining until maturity. The par value of the bond is $1,000. Determine the fair present value of the bond if market conditions justify a 11 percent, compounded quarterly, required rate of return.

Answer 1

$891.1

Step-by-step explanation:

Interest to be paid quarterly = $1000*7.64%/4 = $19

Discounting rate = 11%/4 = 0.0275 = 2.75%

PVAF (2.75%, 16 Periods) = 12.80

PVF (2.75%, 16 Period) = 0.6479

Fair value of the bond = ($19*12.80) + (1000*0.6479)

Fair value of the bond = $243.20 + $647.9

Fair value of the bond = $891.1