Calculate the value of a $1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of
12 percent. The required return on similarminusrisk bonds is 20 percent.
1 answer:
Answer:
$656.82
Explanation:
The calculation of required return is shown below:-
Face value (FV) = $1,000
Coupon rate = 12.00%
Number of compounding periods per year = 4
Interest per period (PMT) = $1,000 × 12.00 ÷ 4
= $30.00
Number of years to maturity = 10
Number of compounding periods till maturity (NPER) = Number of compounding periods per year × Number of years to maturity
= 40
Required rate of return = 20.00%
Required rate of return per period (RATE) = 5.00%
Bonds value = -PV(RATE,NPER,PMT,FV)
= $656.82
Therefore we applied this formula into excel.
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