Related to Checkpoint 9.4)(Bond valuation) A bond that matures in 8 years has a
ID: 2802430 • Letter: R
Question
Related to Checkpoint 9.4)(Bond valuation) A bond that matures in 8 years has a $1,000 par value. The annual coupon interest rate is 8 percent and the market's required yield to maturity on a comparable-risk bond is 12 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?
a.The value of this bond if it paid interest annually would be $__. (Round to the nearest cent.) Related to Checkpoint 9.3)(Bond valuation)
Pybus, Inc. is considering issuing bonds that will mature in 22 years with an annual coupon rate of 9 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 12 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 13 percent. What will be the price of these bonds if they receive either an A or a AA rating?
a. The price of the Pybus bonds if they receive a AA rating will be $__. (Round to the nearest cent.)
Explanation / Answer
9-4)
1 Par value (FV) $ 1,000 2 Coupon rate 8.00% 3 Number of compounding periods per year 1 4 = 1*2/3 Interest per period (PMT) $ 80.00 5 Number of years to maturity 8 6 = 3*5 Number of compounding periods till maturity (NPER) 8 7 Market rate of return/Required rate of return 12.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 12.00% Bond price - Annual coupon payments PV(RATE,NPER,PMT,FV)*-1 Bond price - Annual coupon payments $ 801.29