2008-07-19_230016_Bonds

# 2008-07-19_230016_Bonds - 1 Determine the value of a \$1,000...

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1. Determine the value of a \$1,000 denomination Bell South bond with a 7 percent coupon rate maturing in 20 years for an investor whose required rate of return is: The Price of the bond is equal to the present value of all future payments which includes the coupon payments (an annuity) as well as the Face value. Price = t t 1 1- 1 (1+r) Coupon Payment Face Value r (1+r) e + a. 8 percent Price = 20 20 1 1- 1 (1.08) \$70 \$1,000 0.08 (1.08) e + = \$901.82 b. 7 percent Price = 20 20 1 1- 1 (1.07) \$70 \$1,000 0.07 (1.07) e + = \$1,000 c. 5 percent

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Price = 20 20 1 1- 1 (1.05) \$70 \$1,000 0.05 (1.05) e + = \$1,249.24 2. Consider Allied Signal Corporation’s 9 percent bonds that mature on June 1, 2010. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a \$1,000 denomination Allied Signal Corporation bond as of June 1, 2004, to an investor who holds the bond until maturity and whose required rate of return is: Please see the attached excel sheet for calculations a. 7 percent \$1,137.04 b. 9 percent \$1,039.25 c. 11 percent \$952.41
d.

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