Please show work! I need the most help with formulas. The Garcia Company’s bonds
ID: 2779392 • Letter: P
Question
Please show work! I need the most help with formulas.
The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually.
a. Determine the present value of the bond’s cash flows if the required rate of return is 16 percent.
b. How would your answer change if the required rate of return is 12 percent?
Step 1:
Coupon Rate
Years to Maturity
Number of coupon payments per year
Par Value
Market Value
Step 2:
Compute Periodic Interest Rate
Compute Number of Periods
Compute Coupon Cash Flow
Step 3:
Bond Price
Explanation / Answer
b.
a.
Years
Years 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 10 Cash Flow 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 1008 PV{CF/(1+Rate)^year} $7.56 $7.14 $6.75 $6.38 $6.03 $5.69 $5.38 $5.08 $4.80 $4.54 $4.29 $4.05 $3.83 $3.62 $3.42 $3.23 $3.05 $2.88 $2.73 $324.55 Reqd. Return 12% NPV $415