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Homework answers / question archive / What would you pay for a $50,000 debenture bond that matures in 15 years and pays $5,000 a year in interest if you want to earn a yield of:  (a) 8%? (b) io%? (c) 12%?   

What would you pay for a $50,000 debenture bond that matures in 15 years and pays $5,000 a year in interest if you want to earn a yield of:  (a) 8%? (b) io%? (c) 12%?   

Finance

What would you pay for a $50,000 debenture bond that matures in 15 years and pays $5,000 a year in interest if you want to earn a yield of: 
(a) 8%? (b) io%? (c) 12%? 
 

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Computation of Price of Bond using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

 

a) Yield is 8%:

PV = Price of Bonds = ?

Rate = 8%

Nper = 15 years

PMT = $5,000

FV = $50,000

Substituting the values in formula:

=-pv(8%,15,5000,50000)

PV or Price of Bonds = $58,559.48

 

b) Yield is 10%:

PV = Price of Bonds = ?

Rate = 10%

Nper = 15 years

PMT = $5,000

FV = $50,000

Substituting the values in formula:

=-pv(10%,15,5000,50000)

PV or Price of Bonds = $50,000

 

c) Yield is 12%:

PV = Price of Bonds = ?

Rate = 12%

Nper = 15 years

PMT = $5,000

FV = $50,000

Substituting the values in formula:

=-pv(12%,15,5000,50000)

PV or Price of Bonds = $43,189.14

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