FIN504.R.GitmanCh06.07_Sarai.xlsx - Chapter 6 Interest...

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Chapter 6 Interest Rates and Bond Va Given Data: CSM Corporation Coupon-inte 6% Par Value ### Maturity 15 years Current bon ### Assume that interest on the CSM bond is paid Compound 2 Modified n = 30 Modified pa ### Annual r ### modified r = ### Trial and Error method: Choose various required rates to determine the current bond value. Cell B14 should be blank Cell B15 should have the The spreadsheet will recalculate each time. Continue the process equals the current price of the bond (in this problem it is a premium of $874. Remember that for a bond to be priced at a premium, the coupon Remember that for a bond to be priced at a discount, the coupon Year Perio Paymen PV Payments 2014 0 1 ### 28.9296 ### PVA 538.1914 2015 2 ### 27.8974 3 ### 26.9020 2016 4 ### 25.9422 ### PV 336.2307 5 ### 25.0166 2017 6 ### 24.1240 Bond Value $874.42 7 ### 23.2632 2018 8 ### 22.4332 Current Bo $874.42 9 ### 21.6328 2019 10 ### 20.8609 11 ### 20.1166 2020 12 ### 19.3989 Prove the following: 13 ### 18.7067 When k 8% value = $827.08 2021 14 ### 18.0393 ????? value = $874.42 15 ### 17.3956 6% value = ### 2022 16 ### 16.7749 17 ### 16.1764 2023 18 ### 15.5992 19 ### 15.0427 2024 20 ### 14.5059 21 ### 13.9884 2025 22 ### 13.4893 23 ### 13.0080 2026 24 ### 12.5439 25 ### 12.0963 2027 26 ### 11.6647 27 ### 11.2485 2028 28 ### 10.8472 29 ### 10.4601 2029 30 ### 10.0869 2030 30 ### 336.2307 Bond Va $ 874.42 Current $874.42
Chapter 6: Bond Valuation: P6-13; P6-17; P6-18; P6-19; P6-22 P6-13 Valuation of assets Using the information provided in the following table, find the value of each asset. Cash Flow Asset A End of year 1 2 3 1.3924 $ 1.643 Valuation of Asset B cash flow/rate of return $ 2,000.00 Valuation of Asset C 2.1003416576 $ 16,663.96 Valuation of Asset E 2000/(1.14)^1+3,000/(1.14)^ $ 1,754 $ 2,308 $ 3,374 $ 4,144 $ 2,077 $ 455.00 $ 14,112
Amount Appropriate required return Asset A $ 5,000.00 18% $ 4,237.29 $ 5,000.00 $ 3,590.92 $ 5,000.00 $ 3,043.21 $ 10,871.42 Valuation of Asset D 1500/(1.12)^1 1339.29 $1,339.29 1500/(1.12)^2 1.25 $1,200.00 1500/(1.12)^3 1.40 $1,071.43 1500/(1.12)^4 1.57 $953.28 $9,721.50 1500/(1.12^5 1.76 $851.14 8500/(1.12)^6 1.97 $4,306.36 $9,721.50 ^2+5,000/(1.14)^3+7,000/(1.14)^4+4,000/(1.14)^5+1000/(1.14)^6
Bond value and changing required returns Midland Utilities has outstanding a bond issue that will mature to its $1,000 par value in 12 years. The bond has a coupon interest rate of 11% and pays interest annually.
c. Use your findings in parts a and b to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value.

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