Question
Calculate the value of a bond trading at PAR, below PAR (Discount Bond), and above PAR (Premium Bond) based on the information below. (the template
Calculate the value of a bond trading at PAR, below PAR (Discount Bond), and above PAR (Premium Bond) based on the information below. (the template spreadsheet has been attached)
PAR Bond Details:
A bond has 10 years until maturity with a coupon rate of 5% and an annual coupon payment of $50. Calculate the Present Value.
The same bond has a future value of $1,000 (keeping the same prior assumptions (10 years until maturity, 5% coupon rate), however, excluding the annual coupon payment). Calculate the Present Value.
*When you add the present value for both scenarios the value of the bond will be $1,000.
Discount Bond Details:
A bond has 9 years until maturity with a coupon rate of 7% and an annual coupon payment of $50. Calculate the Present Value.
The same bond has a future value of $1,000 (keeping the same prior assumptions (9 years until maturity, 7% coupon rate), however, excluding the annual coupon payment). Calculate the Present Value.
*When you add the present value for both scenarios the value of the bond will be below $1,000.
Premium Bond Details:
A bond has 9 years until maturity with a coupon rate of 4% and an annual coupon payment of $50. Calculate the Present Value.
The same bond has a future value of $1,000 (keeping the same prior assumptions (9 years until maturity, 4% coupon rate), however, excluding the annual coupon payment). Calculate the Present Value.
*When you add the present value for both scenarios the value of the bond will be above $1,000.
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