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Required Return, R Bond Value, Bo Status Valuation For Annual Bond

The document describes a $1,000 par value bond issued by Lahey Industries with an 8% coupon rate paid annually and 12 years remaining until maturity. It provides the bond value calculations for required returns of 7%, 8%, and 10% assuming annual interest payments. When the required return is 7% the bond value is $1,079.43 (discount), at 8% the value is $1,000 (par), and at 10% the value is -$863.73 (premium). The bond value when interest is paid semiannually and the required return is 10% is also provided.

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Raca Desu
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246 views

Required Return, R Bond Value, Bo Status Valuation For Annual Bond

The document describes a $1,000 par value bond issued by Lahey Industries with an 8% coupon rate paid annually and 12 years remaining until maturity. It provides the bond value calculations for required returns of 7%, 8%, and 10% assuming annual interest payments. When the required return is 7% the bond value is $1,079.43 (discount), at 8% the value is $1,000 (par), and at 10% the value is -$863.73 (premium). The bond value when interest is paid semiannually and the required return is 10% is also provided.

Uploaded by

Raca Desu
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Lahey Industries has outstanding $1,000 par

value bond with an 8% coupon rate. The


bond has 12 years remaining to its maturity
date.
a. If interest is paid annually, find the value of
the bond when the required return is
1. 7%
b. 8%
c. 10%
b. 3 pts
Bond
Required return, r value, Bo Status Valuation for annual bond
7% -$1,079.43 Discount Par value $1,000.00
Par Coupon interest
8% -$863.73 value rate 8%
Annual interest
10% -$1,000.00 Premium payment $80
required rate of
return 7%
number of years to
maturity 12
-
Bond value $1,079.43
Negative because the
bond's price is a cost
for the investor
I = 0.08 x $1,000 = $80
M = 1,000 Valuation for annual bond
n = 12 years Par value $1,000.00
Coupon interest
rate 8%
Annual interest
payment $80
required rate of
return 8%
number of years to
maturity 12
-
Bond value $1,000.00
Negative because the
bond's price is a cost
for the investor

Valuation for annual bond


Par value $1,000.00
Coupon interest
rate 8%
Annual interest
payment $80
required rate of
return 10%
number of years to
maturity 12
Bond value -$863.73
Negative because the
bond's price is a cost
for the investor

b. Indicate or each case in part a whether the


bod is selling at a discount, at a premium, or
at its par value.
c. Using the 10% required return, find the
bond's value when interest is paid
semiannually.

3
pts Valuation for annual bond
Par value $1,000.00
Coupon interest
rate 8%
Annual interest
payment $40
required rate of
return 5%
number of years to
maturity 24
Bond value -$862.01
Negative because the
bond's price is a cost
for the investor

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