Compute the present value for each of the following bonds: a. Priced at the end of its fifth year, a 10-year bond with a face value of $100 and a contract (coupon) rate of 10% per annum (payable at the end of each year) with an effective (required) interest rate of 14% per annum. b. Priced at the beginning of its 10th year, a 14-year bond with a face value of $1,000 and a contract (coupon) rate of 8% per annum (payable at the end of each year) with an effective (required) interest rate of 6% per annum. C. What is the answer to b if bond interest is payable in equal semiannual amounts?
Compute the present value for each of the following bonds: a. Priced at the end of its fifth year, a 10-year bond with a face value of $100 and a contract (coupon) rate of 10% per annum (payable at the end of each year) with an effective (required) interest rate of 14% per annum. b. Priced at the beginning of its 10th year, a 14-year bond with a face value of $1,000 and a contract (coupon) rate of 8% per annum (payable at the end of each year) with an effective (required) interest rate of 6% per annum. C. What is the answer to b if bond interest is payable in equal semiannual amounts?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
1-13 all parts
Transcribed Image Text:Compute index-number trend percents for the following accounts, using Year 1 as the base year.
State whether the situation as revealed by the trends appears to be favorable or unfavorable.
EXERCISE 1-11
Computing Trend
Year 5
Year 4
Year 3
Year 2
Year 1
Percents
Sales......
$283,880
129,200
19,100
$271,800
123,080
18,300
$253,680
116,280
17,400
$235,560
$151,000
68,000
10,000
Cost of goods sold...
107,440
16,200
Accounts receivable
CRECK
Compute the percent of increase or decrease for each of the following account balances:
EXERCISE 1-12
Year 2
Year 1
Computing Percent
Changes
1-3
Short-term investments ...... $217,800
Accounts receivable ....
Notes payable ....
$165,000
42,120
57,000
48,000
Compute the present value for each of the following bonds:
EXERCISE 1-13
Debt Valuation
a. Priced at the end of its fifth year, a 10-year bond with a face value of $100 and a contract (coupon) rate of 10%
per annum (payable at the end of each year) with an effective (required) interest rate of 14% per annum.
b. Priced at the beginning of its 10th year, a 14-year bond with a face value of $1,000 and a contract (coupon) rate
of 8% per annum (payable at the end of each year) with an effective (required) interest rate of 6% per annum.
c. What is the answer to b if bond interest is payable in equal semiannual amounts?
(annual interest)
On January 1, Year 1, you are considering the purchase of $10,000 of Colin Company's 8% bonds. The
bonds are due in 10 years, with interest payable semiannually on June 30 and effective December 31.
Based on your analysis of Colin, you determine that a 6% (required) interest rate is appropriate.
EXERCISE 1-14
Valuation of Bonds
(semiannual interest)
Required:
Expert Solution
Step 1
A bond is a financial instrument issued by large business organizations and governments to raise debt funds for a long-term period. The issuer of a bond shall be liable to pay periodic coupon payments as per the agreed coupon rate.
The intrinsic value of a financial instrument represents a sum of the present value of future cash flows expected from that instrument. Therefore, the bond price at any given time represents a sum of present value of future cash flows expected from the bond.
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