Compute the present value for each of the following bonds:

a$.$ Priced at the end of its fifth year, a $10-$year bond with a face value of $$100$ and a contract $($coupon$)$ rate of $10\%$

per annum $($payable at the end of each year$)$ with an effective $($required$)$ interest rate of $14\%$ per annum.

b$.$ Priced at the beginning of its $10$ th year, a $14-$year bond with a face value of $$1,000$ and a contract $($coupon$)$ rate

of $8\%$ per annum $($payable at the end of each year$)$ with an effective $($required$)$ interest rate of $6\%$ per annum.

c$.$ What is the answer to $b$ if bond interest is payable in equal semiannual amounts?

EXERCISE $1-13$

Debt Valuation

$($annual interest$)$