The Altoona Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 10% annual rate. What is the bond's price today if the interest rate on comparable new issues is 12%? What is the price today if the interest rate is 8%? Explain the results of parts a and b in terms of opportunities available to investors. What is the price today if the interest rate is 10%? Comment on the answer to part d. My teacher gave me this solution: SOLUTION: PB = PMT [PVFAk,n] + FV [PVFk,n] n = 20 ´ 2 = 40 k = 12/2 = 6 PMT = $1,000 ´ .10/2 = $50 FV = $1,000 PB = $50 [PVFA6,40] + $1,000 [PVF6,40] = $50 (15.046 3) + $1,000 (.0972) = $849.52 Bartleby gave me this answer earlier tonight: particulars periods cash flows ($) PVF @ 6% Present Value ($) coupon payments ($1,000 X 5%) 1 to 50 50.00 15.469974 773.4987164 payment on redemption 50 1000 0.053283 53.283021178 Present value of cash inflows 826.78 I need to understand how this problem works based on the solution my teacher gave me please. I'm also not clear why my teacher's answer is 849.52 and Bartleby's answer is 826.78. Please clarify
The Altoona Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 10% annual rate. What is the bond's price today if the interest rate on comparable new issues is 12%? What is the price today if the interest rate is 8%? Explain the results of parts a and b in terms of opportunities available to investors. What is the price today if the interest rate is 10%? Comment on the answer to part d. My teacher gave me this solution: SOLUTION: PB = PMT [PVFAk,n] + FV [PVFk,n] n = 20 ´ 2 = 40 k = 12/2 = 6 PMT = $1,000 ´ .10/2 = $50 FV = $1,000 PB = $50 [PVFA6,40] + $1,000 [PVF6,40] = $50 (15.046 3) + $1,000 (.0972) = $849.52 Bartleby gave me this answer earlier tonight: particulars periods cash flows ($) PVF @ 6% Present Value ($) coupon payments ($1,000 X 5%) 1 to 50 50.00 15.469974 773.4987164 payment on redemption 50 1000 0.053283 53.283021178 Present value of cash inflows 826.78 I need to understand how this problem works based on the solution my teacher gave me please. I'm also not clear why my teacher's answer is 849.52 and Bartleby's answer is 826.78. Please clarify
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 11P
Related questions
Question
The Altoona Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 10% annual rate.
- What is the
bond's price today if the interest rate on comparable new issues is 12%? - What is the price today if the interest rate is 8%?
- Explain the results of parts a and b in terms of opportunities available to investors.
- What is the price today if the interest rate is 10%?
- Comment on the answer to part d.
My teacher gave me this solution:
SOLUTION:
PB = PMT [PVFAk,n] + FV [PVFk,n]
- n = 20 ´ 2 = 40 k = 12/2 = 6 PMT = $1,000 ´ .10/2 = $50 FV = $1,000
PB = $50 [PVFA6,40] + $1,000 [PVF6,40]
= $50 (15.046
3) + $1,000 (.0972)
= $849.52
Bartleby gave me this answer earlier tonight:
particulars | periods | cash flows ($) | PVF @ 6% | Present Value ($) |
coupon payments ($1,000 X 5%) | 1 to 50 | 50.00 | 15.469974 | 773.4987164 |
payment on redemption | 50 | 1000 | 0.053283 | 53.283021178 |
Present value of |
826.78 |
I need to understand how this problem works based on the solution my teacher gave me please. I'm also not clear why my teacher's answer is 849.52 and Bartleby's answer is 826.78. Please clarify
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