Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation. The firm has a bond issue outstanding with 15 years to maturity and a coupon rate of 8 percent, with interest being paid semiannually. The required simple rate of return on this debt has now risen to 16 percent. What is the current value of this bond? (Round the answer to the nearest whole number.)

First, since it is Semiannual coupon, adjust the interest rate to semi-annual rate and multiply 15 years by 2 since we have 2 semi annual periods per year.

Note: If using the same calculator as me, key in the numbers first before the function .

Total duration of investment ;N = 15 * 2 = 30

Interest rate; I/Y = 16% / 2 = 8%

Face value; FV = 1000

Semi annual Coupon Payment ; PMT = (8%/2)*1000 = 40

then CPT PV = $549.689

Therefore the current value of this bond is $550 (rounded to whole number.)

tallinn tallinn · Answer 2 · 2022-02-01T14:24:25+01:00

Solving a question by financial calculator method. I am using (Texas Instruments BA II plus)

The answer is Current value = $550

First, since it is Semiannual coupon, then we adjust the interest rate to semi-annual rate and also that multiply by 15 years by 2 since we have 2 semi annual periods per year.

Current value

Also Note that: If using the same calculator as me, key in the numbers first before the function .

Then the Total duration of investment ;N is = 15 * 2 = 30

Then Interest rate; I/Y = 16% / 2 = 8%

After that the Face value; FV = 1000

Now the Semi annual Coupon Payment ; PMT = (8%/2)*1000 = 40

then CPT PV = $549.689

Thus, the current value of this bond is $550 (rounded to whole number.)

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