FIN504...xlsx - Asset End of the Year Amount A 1 2 3 B 1...

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AssetEnd of the YearAmountA1$5,000$10.871.36Asset A2$5,0003$5,000Asset BB1 through infinity$300 1 / 0.15$2,000Asset CC10$16,663.9620Asset D3040Asset E5$35,000D1 through 5$1,500 N = 6, I = 12$9,713.5368500PMT = $1,500FV = $7,000E1$2,00014% $14,115.272300035000470005400061000PresentValue ofCash FlowsN= 3, I = 18%,PMT = $5,000PV=5000/(1+18%)1PV=Annual Cash FN = 5, I = 16,FV = $35,000PV=0/(1+16%)1+0PV=1500/(1+12%)1PV=2000/(1+14%)1
1+5000/(1+18%)2+5000/(1+18%)3=$10871.36Flow/required return=300/15%=$20000/(1+16%)2+0/(1+16%)3+0/(1+16%)4+35000/(1+16%)5=$16663.961+1500/(1+12%)2+1500/(1+12%)3+1500/(1+12%)4+1500/(1+12%)5+8500/(1+12%)6=$9713.531+3000/(1+14%)2+5000/(1+14%)3+7000/(1+14%)4+4000/(1+14%)5+1000/(1+14%)6=$14115.27
a.BondCalculator InputsCalculator Solutions(1)N = 12, I = 11%, PMT = $110, FV = $1,000$1,000.00(2)N = 12, I = 15%, PMY = $110, FV = $1,000$783.18(3)N = 12, I = 8%, PMT = $110, FV = $1,000$1,226.08b.c.d.When the required return is less than the couponrate, the market value is greater than the parvalue and the bond sells at a premium. When therequired return is greater than the coupon rate,the market value is less than the par value; thebond therefore sells at a discount.The required return on the bond is likely to differfrom the coupon interest rate because either (1)economic conditions have changed, causing ashift in the basic cost of long-term funds, or (2)the firm’s risk has changed.
Bond value and time: Constant required returns Pecos Manufacturing has just issueda 15-year, 12% coupon interest rate, $1,000-par bond that pays interest annually.The required return is currently 14%, and the company is certain it will remainat 14% until the bond matures in 15 years.a. Assuming that the required return does remain at 14% until maturity, find thevalue of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3years, and (6) 1 year to maturity.b. Plot your findings on a set of “time to maturity (x axis)–market value of bond(y axis)” axes constructed similarly to Figure 6.5 on page 252.c. All else remaining the same, when the required return differs from the coupon

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Term
Spring
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