Question

Question 1: Peking Duct Tape Company has outstanding a $1,000-face-value bond with a 14 percent coupon rate and 3 years remaining until final maturity. Interest payments are made semiannually. What value should you place on this bond if your nominal annual required rate of return is 14 percent?

Answer 1

Price Value of bond = $1,000

Step-by-step explanation:

Given:

Face value = $1,000

Coupon rate = 14% yearly

Semi-annual rate = 14 / 2 = 7%

Number of year = 3

Semi-annual year = 3 x 2 = 6

Computation:

pmt(Semi-annual) = (coupon rate x face value)/2

pmt(Semi-annual) = (14% x 1000)/2

pmt(Semi-annual) = 140/2

pmt(Semi-annual) = $70

By using PV formula

=PV(rate,nper,pmt,fv,type) , [Semi-annual]

=PV(7%,6,70,1000,0)

Price Value of bond = $1,000