Calculate the fair present values of the following bonds, all of which pay interest semiannually, have a face value of $1,000, have 10 years remaining to maturity, and have a required rate of return of 15.5 percent.

a. The bond has a 7.2 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e. g., 32.16)) Fair present value $

b. The bond has a 9.2 percent coupon rate. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e. g., 32.16)) Fair present value $

c. The bond has a 15.5 percent coupon rate. (Do not round intermediate calculations.) Fair present value $

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