| | | | | 6/15/15 20:26 |
| Bonds Valuation and Cost of Capital |
| Bond Price |
| a) Assume that UPC is issuing a 10-year, $10,000 par value bond with a 6% annual coupon if its required rate of return is 6%? What is the value of this bond? |
| N | 10 | | Years to Maturity |
| CPN % | 6% | | Coupon Rate |
| YTM | 6% | | Yield-To-Maturity |
| Par Value | $10,000 |
| PRICE | $10,000 |
| PART E |
| b) If the coupon rate changes to 7%, would UPC be issuing a discount or a premium bond? |
| N | 10 |
| CPN % | 7% |
| YTM | 6% |
| Par Value | $10,000 |
| PRICE | $10,736.01 | Premium bond |
| c) If the coupon rate changes to 5%, would UPC be issuing a discount or a premium bond? |
| N | 10 |
| CPN % | 5% |
| YTM | 6% |
| Par Value | $10,000 |
| PRICE | $9,263.99 | Discount bond |
| d) Values of the 5%, 6%, and 7% coupon bonds over time if the required return remained at 6% |
| | | | 6% coupon bond |
| | Maturity | 5% coupon bond | | 7% coupon bond |
| | 0 | $9,263.99 | $10,000 | $10,736.01 |
| | 1 | $9,319.83 | $10,000 | $10,680.17 |
| | 2 | $9,379.02 | $10,000 | $10,620.98 |
| | 3 | $9,441.76 | $10,000 | $10,558.24 |
| | 4 | $9,508.27 | $10,000 | $10,491.73 |
| | 5 | $9,578.76 | $10,000 | $10,421.24 |
| | 6 | $9,653.49 | $10,000 | $10,346.51 |
| | 7 | $9,732.70 | $10,000 | $10,267.30 |
| | 8 | $9,816.66 | $10,000 | $10,183.34 |
| | 9 | $9,905.66 | $10,000 | $10,094.34 |
| | 10 | $10,000.00 | $10,000 | $10,000.00 |
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137228_ip_answers.xlsx
