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Present Value of a Bond
1. Assume that you wish to purchase a 20 year bond that has a maturity value of $1,000 and makes semiannual interest payments of $40. If you require a 10% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
Current Yield of a Bond
2. Consider a $1,000 par value bond with a 7% annual coupon. The bond pays interest annually. There are 9 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10%?
Change in Interest Rates of Bond
3. A bond has a $1,000 face value, coupon rate of 7% with semiannual payments. Assume that the investors require a rate of return of 8%, what is the present value of the bond? Consider now that the investors require a rate of return of 10%, what is the new present value of the bond? Assume there are 10 years remaining until maturity.
Compute the present value of Rs. 1000 receivable 6 years thus if the discount rate is 10 percent. Solution: The present value is computed as follows: PV kn = FV n . PVIF k,n
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