What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually.

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Quizplus · Accepted Answer

The value of a bond can be calculated using the present value of its future cash flows, which include the present value of its coupon payments and the present value of its face value. Given that the bond has a 10 percent annual coupon rate, pays interest semiannually, and the market rate is 16 percent, we calculate the bond's price using the formula for the present value of an annuity for the coupon payments and the present value of a lump sum for the bond's face value at maturity. The calculation is as follows:Coupon payment per period = (10% of $1,000) / 2 = $50Number of periods (n) = 15 years * 2 = 30Market interest rate per period (i) = 16% / 2 = 8%Present value of the annuity (coupon payments) = $50 * [(1 - (1 + 0.08)^-30) / 0.08] = $450.39Present value of the face value = $1,000 / (1 + 0.08)^30 = $211.51Total bond value = Present value of the annuity + Present value of the face value = $450.39 + $211.51 = $661.90

What Is the Value of a PacTen Bond with a 10