How to calculate the present values of two corporate bonds? What would be the risk investing in these bonds?
Melissa asked:
First one issued 25 years ago at a coupon rate of 7% and the second 5 years ago also at a coupon rate of 7%. Both bonds have terms of 30 years and face values of $1,000. The interest rate on these today is at 10%.
First one issued 25 years ago at a coupon rate of 7% and the second 5 years ago also at a coupon rate of 7%. Both bonds have terms of 30 years and face values of $1,000. The interest rate on these today is at 10%.
Categories: Investing | 
Tags: Coupon Rate, Face Values, Investing | 
1 Comment »
growth funds
Do you have a financial calc?Assuming annual payments. If so, the first bond has 5 years left (n=5). The coupon is $70 (assuming $1000 par value) so pmt=70, future value is fv=1000, and you said interes rates are 10%, so i=10. Hit PV to get $886.28. For the next one i=10, n=25, fv=1000, pmt= 70 so PV=$727.69. Since the only thing that changed between the 2 probs was n, then you could have just entered the new n and hit the PV key again. The answers are negative to show that you would have to pay out that much to get back $1000 at maturity @ 10% compounded interest.