Bond valuation questions:

1) Calculate the value of each of the bonds shown in the following table, all of which pay
interest annually.

Bond Par value Coupon Interest rate Years to maturity Required return
A $1,000 14% 20 12%
B 1,000 8 16 8
C 100 10 8 13
D 500 16 13 18
E 1,000 12 10 10

2) 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 the rate on similar-risk bonds is 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?

3) Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000
par values and 11% coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity,
and Bond B has 15 years to maturity.
a. Calculate the value of Bond A if the required return is 1) 8%, 2) 11% and 3) 14%
b. Calculate the value of Bond B if the required return is 1) 8%, 2) 11% and 3) 14%

4) Find the value of a bond maturing in 6 years, with a $1,000 par value and a coupon interest rate
of 10% (5% paid semiannually) if the required return on similar-risk bonds is 14% annual interest
(7% paid semiannually).

5) Calculate the value of a $5,000-par-value bond paying quarterly interest at an annual coupon
interest rate of 10% and having 10 years until maturity if the required return on similar-risk bonds
is currently a 12% annual rate paid quarterly.