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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.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.
Expert Solution
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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