To secure a return of 4%, at what price should a bond be purchased if it is redeemable at P 1,000 in 10 years and plays annual dividends of P 35,00?Ans. P 959.45You purchased a P 500 bond for P 5,100.00. The bond pays 200 per year. It is redeemable for P 5,050 after 10 years. What is the net rate of interest on yourinvestment? Ans. 3.486%

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Answered: To secure a return of 4%, at what price…

To secure a return of 4%, at what price should a bond be purchased if it is redeemable at P 1,000 in 10 years and plays annual dividends of P 35,00? Ans. P 959.45

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 10P

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

To secure a return of 4%, at what price should a bond be purchased if it is redeemable at P 1,000 in 10 years and plays annual dividends of P 35,00?
Ans. P 959.45
You purchased a P 500 bond for P 5,100.00. The bond pays 200 per year. It is redeemable for P 5,050 after 10 years. What is the net rate of interest on your
investment? Ans. 3.486%

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Step 2: Computation of present value of interest payments of bond.

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Step 3: Computation of present value of redemption amount of bond

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Step 4: Computation of Purchase price of bond.

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