The Garret company has to bond issues outstanding?

Question

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S a maturity of 1 year.
a. What will be the value of each of these bonds when the going rate of interest is (1) 5 percent, (2) 8 percent, and (3) 12 percent? Assume that there is only one more interest payment to be made on Bond S. What is the answer, and how did you get it?

Answer 1

The value of a bond in business school terms is the net present value (NPV) of future cash flows, discounted at a certain rate, which in this case would be what you have called the going rate of interest.

If you have a financial calculator or program such as Excel, you can enter the cash flows at the particular times when they come. So at the end of Year 1 you'd have a $100 positive cash flow. In the case of Bond S you'd also have the $1,000 final payment. So you enter 1100 and have the program calculate the NPV of 1100 in one year at the various interest rates. It's not difficult, easy enough that I quickly ran the results in Excel below.

Bond L would have Year 1 100, Year 2 100, etc, until Year 15 1100. Request the NPV of this "income stream" using the various interest rates and you'll have your answer.

For S:

5%: 1,047.62
8%: 1,018.52
12%: 982.14

For L:

5%: 1,518.98
8%: 1,171.19
12%: 863.78

God bless.

Answer 2

are you in Western International University??

Answer 3

You ask the company !