Tutorial – Bond Valuation

1) Assume that Brady Corp. has an issue of 18-year $1,000 par value bonds that pay 7%
interest, annually. Further assume that today's required rate of return on these bonds is
5%. How much would these bonds sell for today? Round off to the nearest $1.

2) What is the value of a bond that has a par value of $1,000, a coupon of $120 (annually),
and matures in 10 years? Assume a required rate of return of 7.8%.

3) What is the value of a bond that matures in 17 years, makes an annual coupon payment of
$50, and has a par value of $1,000? Assume a required rate of return of 6%.

4) Swanson, Inc. bonds have a 10% coupon rate with semi-annual coupon payments. They
have 12 and 1/2 years to maturity and a par value of $1,000. Compute the value of
Swanson's bonds if investors' required rate of return is 8%.

5) SWH Corporation issued bonds on January 1, 2004. The bonds had a coupon rate of
5.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the
bonds mature on January 1, 2019. What is the intrinsic value of an SWH Corporation
bond on January 1, 2010 to an investor with a required return of 7%?

6) A $1,000 par value 14-year bond with a 10 percent coupon rate recently sold for $965.
The yield to maturity is:

7) What is the yield to maturity of a corporate bond with 13 years to maturity, a coupon rate
of 8% per year, a $1,000 par value, and a current market price of $1,250? Assume semi-
annual coupon payments.

8) PDQ bonds have a par value of $1,000. The bonds pay $40 in interest every six months
and will mature in 10 years.

a. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent,
respectively.
b. Explain the impact on price if the required rate of return decreases.
c. Explain the important relationship that exists in bond valuation.