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Five years ago, Oleander, Inc. issued $10,000,000 worth of 15-year zero coupon bonds. The bonds carry...

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Finance

Five years ago, Oleander, Inc. issued $10,000,000 worth of15-year zero coupon bonds. The bonds carry a $5,000 par value. Ifthe market prices the bonds to yield 5.5%, what is the currentvalue of an Oleander bond?

What was the value of the bond three years ago, assuming therequired rate of return was the same as today?

Please explain how to work this on a financialcalculator.  

Answer & Explanation Solved by verified expert
3.7 Ratings (662 Votes)

1)

FV = 5000

PMT = 0

N = 15

I/Y = 5.5

CPT PV

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =15
Bond Price =? [(0*1000/100)/(1 + 5.5/100)^k]     +   1000/(1 + 5.5/100)^15
                   k=1
Bond Price = 447.93

2)

FV = 5000

PMT = 0

N = 18

I/Y = 5.5

CPT PV

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =18
Bond Price =? [(0*1000/100)/(1 + 5.5/100)^k]     +   1000/(1 + 5.5/100)^18
                   k=1
Bond Price = 381.47

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Transcribed Image Text

Five years ago, Oleander, Inc. issued $10,000,000 worth of15-year zero coupon bonds. The bonds carry a $5,000 par value. Ifthe market prices the bonds to yield 5.5%, what is the currentvalue of an Oleander bond?What was the value of the bond three years ago, assuming therequired rate of return was the same as today?Please explain how to work this on a financialcalculator.  

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