And please do me a favour, I\'ve had a lot of answers to this question, don\'t j
ID: 2636313 • Letter: A
Question
And please do me a favour, I've had a lot of answers to this question, don't just take a shot, only answer if u know you are correct. Thanks 7. judith, Inc., bonds mature in eight years and pay a semi-annual coupon of $55. The bond's par value is $1,000. what is their current price if the market interest rate for bonds of similar quality is 9.2 percent? A change in Fed policy increases market interest rates 0.50 percentage points from their level in part (a). What is the percentage change in the value of Judith, Inc. bonds from their value in part (a)? Better profits for Judith, Inc reduces the market interest rate c. for its bonds to 9.0 percent_ What is the percentage change in the value of Judith, Inc. bonds from the answer in part (b)?Explanation / Answer
Calculating the Present value of the bond using excel sheet:
Semi-annual coupon payment = $55
Semi-annual market rate = 9.2% / 2
= 4.6%
Semi-annual periods = 8 * 2
= 16 periods
Step1: Go to excel and click"insert" to insert the function.
Step2: Select the "PV" function as we are finding the present value of the bond in this case.
Step3: Enter the values as Rate = 4.6%; Nper = 16; PMT = -55 ; FV = -1000
Step4: Click "OK" to get the desired value.
The value come to " $1,100.38"
Therefore, the present value of the bond is $1100
b) If the market interest rate increased by 0.50% then the new market interest rate is 9.7%
Semi-annual market rate = 9.7% / 2
= 4.85%
Semi-annual periods = 8 * 2
= 16 periods
Step1: Go to excel and click"insert" to insert the function.
Step2: Select the "PV" function as we are finding the present value of the bond in this case.
Step3: Enter the values as Rate = 4.85%; Nper = 16; PMT = -55 ; FV = -1000
Step4: Click "OK" to get the desired value.
The value come to " $1,071.2"
Therefore, the present value of the bond is $1071
Decrease in the value of the bonds is $29 (2.6%) for 0.50% increase in the market interest rate.