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A $1,000 par value bond was issued five years ago at a 8 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer to 2 decimal places.)

b. If Mr. Robinson initially bought the bond at par value, what is his percentage capital gain or loss? (Ignore any interest income received. Do not round intermediate calculations and input the amount as a positive percent rounded to 2 decimal places.)

c. Now assume Mrs. Pinson buys the bond at its current market value and holds it to maturity, what will be her percentage capital gain or loss? (Ignore any interest income received. Do not round intermediate calculations and input the amount as a positive percent rounded to 2 decimal places.)

d. Why is the percentage gain larger than the percentage loss when the same dollar amounts are involved in parts b and c?

multiple choice

• The percentage gain is larger than the percentage loss because the investment is larger.

• The percentage gain is larger than the percentage loss because the investment is smaller.

Appendix D Present value of an annuity of $1. PVA PVA = A (1 + i)" Percent Period 19 2% 3% 4% 5% 7% 8% 9% 10% 11% 1 6% 0.943 0.971 0.962 0.952 0.935 2 0.990 1.970 2.941 1.913 1.886 0.980 1.942 2.884 3.808 4.713 3 2.775 0.901 1.713 2.444 2.829 3.717 1.808 2.624 3.387 0.917 1.759 2.531 3.240 3.890 1.859 2.723 3.546 4.329 5.076 1.833 2.673 3.465 4.212 0.909 1.736 2.487 3.170 3.791 4 3.902 126 0.893 1.690 2.402 3.037 3.605 3.630 4.452 3.102 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 5 4.853 4.580 4.100 3.696 6 5.601 4.486 5.242 6.002 7 4.767 5.389 6.472 5.417 6.230 7.020 7.786 4.917 5.582 6.210 4.111 4.564 4.355 4.868 5.335 8 7.325 5.786 6.463 7.108 5.033 5.535 6.733 5.795 6.728 7.652 8.566 9.471 10.368 11.255 5.971 4.231 4.712 5.146 5.537 5.889 9 6.515 8.162 8.983 9.787 7.435 8.1.11 10 8.530 6.247 6.710 7.722 5.759 6.145 7.024 11 6.802 7.360 7.887 8.384 9.253 8.760 9.385 7.139 4.968 5.328 5.650 5.938 6.194 6.424 6.495 8.306 8.863 6.207 12 7.499 7.943 10.575 7.536 5.995 6.418 6.805 7.161 7.487 7.786 8.061 6.814 13 11.348 9.986 8.853 8.358 7.904 9.954 10.635 1 1.296 11.938 9.394 9.899 14 10.563 9.295 12.134 13.004 13.865 14.718 8.745 6.492 6.750 6.982 7.191 8.244 12.106 12.849 7.103 7.367 7.606 6.628 15 11.118 10.380 9.712 9.108 8.559 6.811 16 13.578 12.561 11.652 10.838 9.447 8.313 10.106 10.477 17 15.562 14.292 7.379 7.549 11.274 8.851 9.122 9.372 6.974 7.120 13.166 13.754 12.166 12.659 8.544 18 16.398 14.992 7.824 8.022 8.201 8.365 8.756 11.690 12.085 9.763 10.059 10.336 10.594 10.828 11.158 19 17.226 15.678 14.324 7.250 7.366 13.134 9.604 20 8.950 9.129 16.351 14.877 12.462 9.818 8.514 11.470 12.783 14.094 7.702 7.839 7.963 8.422 8.694 11.654 25 30 10.675 9.823 18.046 22.023 25.808 32.835 39.196 9.077 13.590 15.622 17.292 19.793 21.482 7.469 7.843 8.055 11.258 19.523 22.396 27.355 31.424 9.427 17.413 19.600 23.115 25.730 15.372 17.159 13.765 15.046 12.409 13.332 40 11.925 10.274 10.757 10.962 8.244 50 9.779 9.915 8.951 9.042 18.256 15.762 13.801 12.233 8.304 sha Appendix B Present value of $1, PV PV = FV Percent Period 1% 2% 3% 5% 6% 7% 4% 0.962 8% 9% 10% 11% 0.971 12% 0.952 0.943 0.935 0.926 2 0.909 0.925 0.890 0.873 0.901 0.812 0.907 0.864 3 0.889 0.840 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.816 0.917 0.842 0.772 0.708 0.893 0.797 0.712 0.857 0.794 0.735 0.826 0.751 4 0.855 0.943 0.915 0.888 0.863 0.837 0.813 0.823 0.792 0.731 0.659 5 0.683 0.636 0.822 0.784 0.763 0.713 0.666 0.681 0.747 0.705 6 0.621 0.593 0.746 0.650 0.596 0.790 0.760 7 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.567 0.507 0.665 0.630 0.583 0.564 0.513 0.711 0.677 8 0.547 0.535 0.482 0.434 0.731 0.853 0.837 0.452 9 0.627 0.592 0.703 0.645 0.789 0.766 0.744 0.722 10 0.820 0.502 0.460 0.422 0.391 0.614 0.558 11 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.352 0.804 0.788 0.585 0.527 0.540 0.500 0.463 0.429 0.397 0.368 12 0.676 0.650 0.625 0.601 0.577 0.388 0.701 0.317 0.497 13 0.773 0.681 0.557 0.530 0.286 14 0.758 0.356 0.326 0.299 0.404 0.361 0.322 0.287 0.257 0.229 0205 0.183 0.163 0.146 0.661 0.469 0.442 0.417 0.258 0.388 15 0.505 0.481 0.340 0.743 0.642 0.861 0.853 0.555 0.232 16 0.315 0.728 0.275 0.623 0.534 0.458 0.209 0.394 17 0.362 0.339 0.317 0.292 0.605 0.513 0.436 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.022 0.009 18 19 0.587 0.494 0.371 0.350 0.570 0.130 0.844 0.836 0.828 0.820 0.780 0.742 20 0.331 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372 25 0.416 0.396 0.377 0.295 0.296 0.277 0.258 0.475 0.456 0.375 0.308 0.554 0.478 0.312 0.233 0.252 0.231 0.2.12 0.194 0.178 0.116 0.075 0.032 0.013 0.270 0.250 0.232 0.215 0.146 0.099 0.046 0.021 0.188 0.170 0.153 0.138 0.124 0.074 0.044 0.015 0.005 0.116 0.104 30 0.412 0.231 40 0.174 0.059 0.672 0.208 50 0.184 0.131 0.067 0.034 0.307 0.228 0.608 0.142 0.087 0.141 0.097 0.054 0.033 0.011 0.003