BOND

A bond is simply a loan taken out by a company. Instead of

going to a bank, the company gets the money from investors
who buy its bonds. In exchange for the capital, the company
pays an interest coupon, which is the annual interest rate paid
on a bond expressed as a percentage of the face value.
The seven different types of bail are:
 Surety Bonds.
 Property Bonds.
 Citation Release.
 Recognizance Release.
 Cash Bail.
 Federal Bail Bonds.
 Immigration Bail Bonds.
Problem 1:
A $100 par value bond bearing a coupon rate of 12 percent will mature after 5
years. What is the value of the bond, if the discount rate is 15 percent by factor
formula and table?
Solution: 
Vb = 12 (PVIFA 15%, 5) + 100 (PVIF 15%, 5)
Vb = 12 (3.3522) + 100 (0.4972)
Answer: $89.95

Problem 2:
$100 par value debenture paying coupon of $10 per annum is redeemed at par in
3 years. The average annual discount rate is 6%. Coupons are paid semi
annually, what is the price of this debt by general floating equation?
 
Solution: 

Answer: $110.56

Problem 3:
$10,000 zero coupon bonds is redeemed at par in 4 years. The average annual
discount rate is 7%. What is the price of this bond?
Solution: 
 Answer: $7,628.95

Problem 4:
The par value of 10% debenture is $1,000 with maturity is 3 years. What would
be the price by general floating formula if interest rate is (a) 12%, (b) 10%
and (c) 8%?
Solution (a): 

Answer: $951.96
Solution (b): 

Answer: $1,000
Solution (c):

Answer: $1,051.54
 
Problem 5:
A bond has a par value of $100, a coupon rate of 10.75% and matures in 5
years. If interest is paid annually and the required rate of return is 10%, what is
the bond’s value by general constant rate formula?
Solution: 
 Answer: $102.84

Problem 6:
$1,000 bond, 9%, due 4/1/2022, with interest each April 1 and October 1, issued
4/1/2002. Calculate intrinsic value of debt assuming market rate of return is 10
%?
Solution: 

Answer: $869.38
 
Problem 7:
Irredeemable bond paying coupon of $10 per annum has an average annual
discount rate 6%. Coupons are paid semi-annually, what is the price of this
bond?
Solution: 

Answer: $869.38
 
Problem 8:
8% corporate bond is due in 10 years. What is the price of the bond if the
nominal yield to maturity is 12% p.a. using factor formula? (Note that the bond
pays the coupons semiannually and has a face value equal to $5,000)?
Solution: 
Vb = 400/2 (PVIFA12%/2, 10*2) + 5,000(PVIF12%/2, 10*2)
 Vb = 200 (11.470) + 5,000 (0.3118)
Vb = 2,294 + 1,559
Answer: $3,853
 
Problem 9:
You have a $1,000 par, 5% coupon, Pak Treasury bond with 7 years remaining
in its life. Coupons are paid semiannually and the next coupon payment is
exactly six months away. The market interest rate is 6% (nominal rate with
semiannual discounting). What is the current price of this bonds assuming that
10 bonds held to maturity?
Solution: 
Vb = 500 (PVIFA 6%/2, 7*2) + 10,000 (PVIF 6%/2, 7*2)
Vb = 500 (11.296) + 10,000 (0.6611)
Vb = 5,648 + 6,611
Answer: $12,259
 
Problem 10:
ABC is Public Limited Company. The company board of director was decided
to offer 1,000 no. of bonds of par value of $10 each in 2004; carrying 15 percent
coupon rate and 5 year maturity period, bond would mature in 2009. The
discount rate in first year (2005) was 10 percent. The rate was same in 2006.
After that market rate of return had increased to 14 % in 2007. Under rising
inflation and political instability the rate further jumped to 16 percent in 2008.
We are in 2009 year and expected that market rate will remain 12 percent in this
year and market value of bonds will be 9 per bond (1,000 bonds). What will be
present value of bond?
Solution: 

Answer: $10,402.18