2 pages/≈550 words
Mathematics & Economics
Finance Course Work (Math Problem Sample)
- What annual coupon rates would Carem have to pay in order to issue 10-year par value bonds and receive proceeds of $2 million?
- What would be the impact on Carem’s funding plans if it included a call feature in the bond, effective five years from date of issue. The call price would be 110% of par value. What would be the benefits of including the call feature?
Finance Course Work
November 8, 2015
What annual coupon rates would Carem have to pay in order to issue 10-year par value bonds and receive proceeds of $2 million?
Value of the bond = Present value of the annual coupon interest + Present value of the principal amount after 10 years
Value of the bond = PVAF r% 10 years (Interest) + PVIF r% Year 10 (Principal)
Using the YTM rate of 11% for 10 years
Value of the bond = PVAF 11% 10 years (Interest) + PVIF 11% Year 10 (2,000,000)
From the Annuity tables:
PVAF 11% 10 years = 5.8892
PVIF 11% Year 10 = 0.3522
Current value of the bond = 2,000,000
Current value of the bond = 5.8892 (Interest) + (0.3522 x 2,000,000)
2,000,000 = 5.8892 (Interest) + 704400
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