ACFAR 3335 (Valuation Concepts and Methods)

Summer, AY 2020-2021

Preparatory Assessment Task 2

General Direction:
1. Solve the following problems with your complete answers/solutions.
2. Write all your answers in separate sheet of bond paper.
3. Submit your answer in pdf/photo file.

1. Valuation of Assets

Using the information provided in the following table, find the value of each asset.
 2. Basic Bond Valuation

Complex Systems has an outstanding issue of $1,000- par-value bonds with a 12% coupon interest
rate. The issue pays interest annually and has 16 years remaining to its maturity date.

a. If bonds of similar risk are currently earning a 10% rate of return, how much should the Complex
Systems bond sell for today?
b. Describe the two possible reasons why similar-risk bonds are currently earning a return below the
coupon interest rate on the Complex Systems bond.
c. If the required return were at 12% instead of 10%, what would the current value of Complex
Systems’ bond be? Contrast this finding with your findings in part a and discuss.

3. Yield to Maturity

Each of the bonds shown in the following table pays interest annually.

a. Calculate the yield to maturity (YTM) for each bond.

b. What relationship exists between the coupon interest rate and yield to maturity and the par
value and market value of a bond? Explain.

4. Bond valuation—Semiannual interest

Calculate the value of each of the bonds shown in the following table, all of which pay interest
semiannually