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FIN 571 Corporate Finance Week 2 Assignment University of Phoenix
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FIN 571 Corporate Finance Week 2 Assignment University of Phoenix
Week 2 Homework
FIN/571 Corporate Finance
Chapter 5 Problems
A1. (Bond Valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Cash flow = $1000 x 7.4 % = $74
The fair value of the bond is $474.90 + $422.21 = $897.31, calculation as follows: 1. (1/a)x(1- 1/(1+a)^n) = (1/9%)x(1-1(1+9%)^10) = 6.4176. $74 x 6.4176 = $474.90
2. 1/(1+i)^n = 1/(1+9%)^10 = 0.42241
$1000 x 0.42241 = $422.41
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