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Calculate the value of bond D shown in the following table, all of which pay interest semiannually. <image 1>


The correct answer is $1,245.99.

First, calculate the semiannual coupon payment: 1,000x141,000 x 14% / 2 = 70

Next, calculate the number of semiannual periods: 10 years x 2 = 20 periods

Then, calculate the present value of the coupon payments using the formula: PV = C x [1 - (1 + r)^-n] / r where: C = semiannual coupon payment r = semiannual interest rate n = number of semiannual periods

PV = 70x[1(1+0.10/2)20]/0.10/2PV=70 x [1 - (1 + 0.10 / 2)^-20] / 0.10 / 2 PV = 70 x [1 - (1.05)^-20] / 0.05 PV = 70x[10.37689]/0.05PV=70 x [1 - 0.37689] / 0.05 PV = 70 x 0.62311 / 0.05 PV = $872.35

Finally, calculate the present value of the bond: PV of bond = PV of coupon payments + PV of principal PV of bond = 872.35+872.35 + 1,000 PV of bond = $1,872.35

Therefore, the value of bond D is $1,872.35.


Difficulty: Medium

Subfield: Managerial Finance

Input

Input ID
a9f9e161-f52e-4b90-b7c5-f8171c1458b6
Created
February 21, 2024
Permission
Public