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Homework answers / question archive / Andere Limited has issued a $ 30,000 par value bond with a coupon rate of 8%p

Andere Limited has issued a $ 30,000 par value bond with a coupon rate of 8%p

Finance

Andere Limited has issued a $ 30,000 par value bond with a coupon rate of 8%p.a and a maturity period of 15 years. I Required: Create an excel model showing the interest and principal repayments separately and calculate the value of the bond when the required rate of return is 10% assuming (1) Interest is paid annually. (4 Marks) (1) Interest is paid semi-annually. 

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Answer(i) When interest is paid annually .

Coupon Value = 30000*8/100 = 2400 ; Discounting Factor = 10% , Tine(n) = 15 years

Time(n) Cash Flow PV @ 10% = 1/(1+.10)^n PV of Cash Flow
1 2400 0.909090909 2181.818182
2 2400 0.826446281 1983.471074
3 2400 0.751314801 1803.155522
4 2400 0.683013455 1639.232293
5 2400 0.620921323 1490.211175
6 2400 0.56447393 1354.737432
7 2400 0.513158118 1231.579484
8 2400 0.46650738 1119.617713
9 2400 0.424097618 1017.834284
10 2400 0.385543289 925.3038946
11 2400 0.350493899 841.1853588
12 2400 0.318630818 764.7139625
13 2400 0.28966438 695.1945114
14 2400 0.263331254 631.9950103
15 30000 0.239392049 7181.761481
    Value of the bond>> 24861.81138

Answer(ii) When interest is paid semi annually

Coupon Value = 30000*4/100 = 1200 ; Discounting Factor = 10% , Time(n) = 30 half years

Time(n) Cash Flow    PV @ 10% = 1/(1+.10)^n   PV of Cash Flow
1 1200 0.909091 1090.909
2 1200 0.826446 991.7355
3 1200 0.751315 901.5778
4 1200 0.683013 819.6161
5 1200 0.620921 745.1056
6 1200 0.564474 677.3687
7 1200 0.513158 615.7897
8 1200 0.466507 559.8089
9 1200 0.424098 508.9171
10 1200 0.385543 462.6519
11 1200 0.350494 420.5927
12 1200 0.318631 382.357
13 1200 0.289664 347.5973
14 1200 0.263331 315.9975
15 1200 0.239392 287.2705
16 1200 0.217629 261.155
17 1200 0.197845 237.4136
18 1200 0.179859 215.8305
19 1200 0.163508 196.2096
20 1200 0.148644 178.3724
21 1200 0.135131 162.1567
22 1200 0.122846 147.4152
23 1200 0.111678 134.0138
24 1200 0.101526 121.8307
25 1200 0.092296 110.7552
26 1200 0.083905 100.6865
27 1200 0.076278 91.53322
28 1200 0.069343 83.21202
29 1200 0.063039 75.64729
30 30000 0.057309 1719.257
    Value of the bond>> 12962.78

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