Answer:
Explanation:
A)
CR Semi annually 7.2/2 3.6%
Semi Annual Cash-flow 1000*3.6% 36
Rate of Return 15.5 7.75%
Present value of bond at 7.75% semmi annually return
Due to series of c/F apply annuity 1-(1+0.0775)^-20
Due to one single c/F apply compound 1/(1+0.0775)^20
No of Cash flows Discount facto5 @ 7.75% annuity Present Value
Cashflows P=R*(1-(1+I )^-n) / i
20 36 9.966011947 358.7764301
1 1000 0.222651068 222.6510682
Present values 581.4274982
B)
CR Semi annually 9.2/2 4.6%
Semi Annual Cash-flow 1000*4.6% 46
Rate of Return 15.5 7.75%
Present value of bond at 7.75% semmi annually return
No of Cash flows Discount facto5 @ 7.75% annuity Present Value
Cashflows P=R*(1-(1+I )^-n) / i
20 46 9.966011947 458.4365495
1 1000 0.222651068 222.6510682
Present Value 681.0876177
C)
There is no transaction cost and CR = IRR thats why the present value of the bond will be equal to face value of bond
CR = 15.5%
IRR = 15.5%
Present value of bond at 7.75% semmi annually return
No of Cash flows Discount facto5 @ 7.75% annuity Present Value
Cashflows P=R*(1-(1+I )^-n) / i
20 77.5 9.939402948 770.3037285
1 1000 0.22472657 224.7265701
995.0302985
Difference is due to decimals
