Chapter 7 Problem Solutions
7-1
With your financial calculator, enter the following:
N = 10; I/YR = YTM = 9%; PMT = 0.08
×
1,000 = 80; FV = 1000; PV = V
B
= ?
PV = $935.82.
7-5
a.
1.
5%:
Bond L:
Input N = 15, I/YR = 5, PMT = 100, FV = 1000, PV = ?,
PV = $1,518.98.
Bond S:
Change N = 1, PV = ?
PV = $1,047.62.
2.
8%:
Bond L:
From Bond S inputs, change N = 15 and I/YR = 8, PV = ?,
PV = $1,171.19.
Bond S:
Change N = 1, PV = ?
PV = $1,018.52.
3.
12%: Bond L:
From Bond S inputs, change N = 15 and I/YR = 12, PV = ?,
PV = $863.78.
Bond S:
Change N = 1, PV = ?
PV = $982.14.
b.
Think about a bond that matures in one month.
Its present value is influenced
primarily by the maturity value, which will be received in only one month.
Even
if interest rates double, the price of the bond will still be close to $1,000.
A 1-
year bond’s value would fluctuate more than the one-month bond’s value because
of the difference in the timing of receipts.
However, its value would still be fairly
close to $1,000 even if interest rates doubled.
A long-term bond paying