Suppose a friend of yours invested in an outstanding bond with Luminous Lighting. The bond has an annual coupon rate of 9%, a remaining maturity of 14 years, and a $1,000 par value. The market interest rate is currently 11%. In order to use a financial calculator to compute how much your friend paid for the bond, you will need to know the following information: Compute the amount of interest paid each year by completing the following math derivation. Select this same value from the "PMT" drop down menu found in the following financlal calculator table. Amount of thiterest = Coupon Rate Par Value Suppose a friend of yours invested in an outstanding bond with Luminous Lighting. The bond has an annual coupon rate of 9%, a remaining maturity of 14 years, and a $1,000 par value. The market interest rate is currently 11%. In order to use a financial calculator to compute how much your friend paid for the bond, you will need to know the following information: Compute the amount of interest paid each year by completing the following math derivation. Select this same value from the "PMT" drop down menu found in the following financlal calculator table. Amount of thiterest = Coupon Rate Par Value Next, enter the number of years before the bond matures into the " N " cell of the following financial calculotor table. Remember that the going rate of interest is what determines the market price of a bond. Therefore, this is the value that you would need to enter Into your financial calculater. Enter the market interest rate into the "I/r" cell of the following financial calculator table. Using a financial calculator, compute the present value of the cash flows this asset is expected to produce. Enter this value into the finak how of the following table. Note: Make sure yout calculator is set to ENO mode. The absolute value of the present value your calculstor computed is the market price of the bond. Because the market price is the par value, your friend purchased a bond. 5tep 3t Practicer Elond Valuation Now it's time for you to practice what you've ieamed. Locia is deciding which two bonds she wants to invest in. Bond A has 24 years remaining to maturity, and the coupon interest rate is 1246 per year. Bond 8 has 21 vears to Now it's time for you to practice what you've leamed. Lucia is deciding which two bonds she wants to invest in. Bond A has 24 years remaining to maturity, and the coupon interest rate is 12% per year. Bond B has 21 years to maturity; and the coupon interest rate is 7% per year. Both bonds have a $1,000 par value and the yield to maturity is 10% Complete by the following table by using a financial calculator to determine the market price for each bond and whether the bond is a premium. discount, or par bond
