Problem 7-5 Bond valuation An investor has two bonds in his portfolio that both
ID: 2647095 • Letter: P
Question
Problem 7-5
Bond valuation
An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 8% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be made on Bond L.
What will the value of the Bond L be if the going interest rate is 4%? Round your answer to the nearest cent.
$
What will the value of the Bond S be if the going interest rate is 4%? Round your answer to the nearest cent.
$
What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent.
$
What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent.
$
What will the value of the Bond L be if the going interest rate is 12%? Round your answer to the nearest cent.
$
What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent.
$
Explanation / Answer
What will the value of the Bond L be if the going interest rate is 4%? Round your answer to the nearest cent.
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 19
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*8% = 80
FV (indicates the face value) = 1000
Rate (indicates YTM) = 4%
Bond Value = pv( 4%,19,80,1000)
Bond Value = $ 1525.36
What will the value of the Bond S be if the going interest rate is 4%? Round your answer to the nearest cent.
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 1
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*8% = 80
FV (indicates the face value) = 1000
Rate (indicates YTM) = 4%
Bond Value = pv( 4%,1,80,1000)
Bond Value = $ 1038.46
What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent.
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 19
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*8% = 80
FV (indicates the face value) = 1000
Rate (indicates YTM) = 8%
Bond Value = pv( 8%,19,80,1000)
Bond Value = $ 1000
What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent.
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 1
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*8% = 80
FV (indicates the face value) = 1000
Rate (indicates YTM) = 8%
Bond Value = pv( 8%,1,80,1000)
Bond Value = $ 1000
What will the value of the Bond L be if the going interest rate is 12%? Round your answer to the nearest cent.
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 19
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*8% = 80
FV (indicates the face value) = 1000
Rate (indicates YTM) = 12%
Bond Value = pv( 12%,19,80,1000)
Bond Value = $ 705.37
What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent.
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 19
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*8% = 80
FV (indicates the face value) = 1000
Rate (indicates YTM) = 12%
Bond Value = pv( 12%,19,80,1000)
Bond Value = $ 964.29