To expand its business, the Kingston Outlet factory would like to issue a bond with par value of $1,000, coupon rate of 10 percent, and maturity of 10 years from now
What is the value of the bond if the required rate of return is (1 ) 8 percent, (2 ) 10 percent, and (3 ) 12 percent?
Coupon payment = 1,000 × 0.10 = $100
(1 ) Using Financial calculator: PMT=100, N=10, I=8, FV=1000, CPT PV = $1,134.20
(2 ) $1,000 since coupon rate and required rate of return are equal.
(3 ) Using Financial calculator: PMT=100, N=10, I=12, FV=1000, CPT PV = $887
Business
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