Bond Valuation Problems

-Directions: Instructions: Solve the following problems, reflecting the entire procedure with the following formulas as applied to the problem:

USE THE TABLES TO FIND THE MULTIPLIER.

• V= I/m x [PVIF(A)kd%/m, n/m] + M x [PVIF kd%/m, n/m]
• V= I/m (Multiplicador T. 4) + Par Value (Multiplicador T. 2)

Bond value = PV of interest + PV of MV

Bond value = PV annuity + PV of par value-lump sum

Where:

V = value of a bond

I = annual interest =Coupon Int Rate X Par Value

n = years to maturity

m = how many times are interests computed on a year

M = dollar par value

kd = required return on the bond (market interest rates for new comparable bonds)

TABLE 2 Present Value Factors (SIMPLE) PV = FV (PVIF)

Periods 1 % 2 %3 % 4 % 5 % 6 % 7

1 .9901 .9804 .9709 .9615 .9524 .9434 .9346

2 .9803 .9612 .9426 .9246 .9070 .8900 .8734

3 .9707 .9423 .9151 .8890 .8638 .8396 .8163

4 .9610 .9238 .8885 .8548 .8227 .7921 .7629

5 .9515 .9057 .8626 .8219 .7835 .7473 .7130

6 .9420 .8880 .8375 .7903 .7462 .7050 .6663

7 .9327 .8706 .8131 .7599 .7107 .6651 .6228

8 .9235 .8535 .7894 .7307 .6768 .6274 .5820

9 .9143 .8368 .7664 .7026 .6446 .5919 .5439

10 .9053 .8203 .7441 .6756 .6139 .5584 .5083

11 .8963 .8043 .7224 .6496 .5847 .5268 .4751

12 .8874 .7885 .7014 .6246 .5568 .4970 .4440

13 .8787 .7730 .6810 .6006 .5303 .4688 .4150

14 .8700 .7579 .6611 .5775 .5051 .4423 .3878

15 .8613 .7430 .6419 .5553 .4810 .4173 .3624

16 .8528 .7284 .6232 .5339 .4581 .3936 .3387

17 .8444 .7142 .6050 .5134 .4363 .3714 .3166

18 .8360 .7002 .5874 .4936 .4155 .3503 .2959

19 .8277 .6864 .5703 .4746 .3957 .3305 .2765

20 .8195 .6730 .5537 .4564 .3769 .3118 .2584

21 .8114 .6598 .5375 .4388 .3589 .2942 .2415

22 .8034 .6468 .5219 .4220 .3419 .2775 .2257

23 .7954 .6342 .5067 .4057 .3256 .2618 .2109

24 .7876 .6217 .4919 .3901 .3101 .2470 .1971

TABLE 4 Present Value Of Annuity Factors PV(A)o= Annuity [PVIF(A)]

Periods 1 % 2 % 3 % 4 % 5 % 6 % 7 %

1 .9901 .9804 .9709 .9615 .9524 .9434 .9346

2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080

3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243

4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872

5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002

6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665

7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893

8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713

9 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152

10 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236

11 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987

12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427

13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577

14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455

15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079

16 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466

17 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632

18 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591

19 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356

20 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940

21 18.8570 17.0112 15.4150 14.0292 12.8212 11.7641 10.8355

22 19.6604 17.6580 15.9369 14.4511 13.1630 12.0416 11.0612

23 20.4558 18.2922 16.4436 14.8568 13.4886 12.3034 11.2722

24 21.2434 18.9139 16.9355 15.2470 13.7986 12.5504 11.4693

1. A bond has a $1,000 face value, a current market price of $780, and pays semi-annual interest payments of $60 every year. What is the coupon rate? Required: Compute the Annual Coupon Interest Rate for the Bond. Show procedure. (3points)

2. Zamba Corp. issued 24 years ago a Bond with a par value of $1,000, an originalmaturity of 30 years and a Coupon Interest Rate of 12%. Now, Market Interest Rates are 6%.

a)- What would be the Value of this bond today if interest rates are compounded semiannually? (4 points)

b)- Compute the premium or discount for the bond (1 point)

3-A 8% annual coupon bond pays an annual interest and has a $1,000 par value. This bond is currently trading for

a)- $1,250 (its value today). This bond has a current yield of _______ percent. (4 points)

4- A 10-year zero couponbond has a par valueof $1,000 and a requiredreturn of 6% annual rate and is compounded annually. What would be the Value of this Zero Bond approximately ? (4 points

5- A perpetual bond has a $1,000face value and provides a 6% couponcompounded annually. The appropriate discount rate is 9%. What is the value of the perpetual bond today? (4 points)