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Homework answers / question archive / Howard Corporation issued a bond that pays $200 annual coupon
Howard Corporation issued a bond that pays $200 annual coupon. The par value of the bond is $1000 with 3 yrs left to maturity. The going rate is 21% for these types of securities. There is a sudden decline in market rate and required changes to 20%. What will be the percent change in the value of this bond?
We can calculate the value of the bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Value of the bond
Rate = 21%
Nper = 3 periods
Pmt = $200
FV = $1,000
Substituting the values in formula:
= -pv(21%,3,200,1000)
= $979.26
We can calculate the value of the bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Value of the bond
Rate = 20%
Nper = 3 periods
Pmt = $200
FV = $1,000
Substituting the values in formula:
= -pv(20%,3,200,1000)
= $1,000
Computation of the percentage change in the value of the bond:-
% change in the value of bond = ($1,000 - $979.26) / $979.26
= $20.74 / $979.26
= 2.12%
