Pecos Manufacturing has just issued a15year12coupon interest

Pecos Manufacturing has just issued a15?-year,12?%coupon interest? rate,?$1,000?-parbond that pays interest annually.??The required return is currently15?%,and the company is certain it will remain at15?%until the bond matures in15years.

a.??Assuming that the required return does remain at15?%until? maturity, find the value of the bond with? (1)15 ?years, (2) 12? years, (3) 9? years, (4) 6? years, (5) 3? years, (6) 1 year to maturity.

Solution

a. 1) FV = 1000, PMT = 120, N = 15, rate = 15%

use PV function in Excel

value = 824.58

2) replace N with 12 and recalculate PV

value = 837.38

3) N = 9

value = 856.85

4) N = 6

value = 886.47

5) N = 3

value = 931.50

6) N = 1

value = 973.91