Q50971e For facts in illustration4 (Q50970e), assume (i) the bonds of the firm pay interest semiannually, (ii) the required stated return is 14 per cent for similar-risk bonds that also pays half-yearly interest. Compute the value of bond.

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Solution:

Substituting the values in following Equation we get

B = (Rs 1,000 / 2) x [PVlFA_{14I2 x 2; 10]} + Rs 10,000 x [PVlF_{14I2 x 2; 10]}

= (Rs 1,000 / 2) x [PVlFA_{7, 20]} + Rs 10,000 x [PVlF_{7, 20]}

= (Rs 500 x 10.594) + (Rs 1,000 x 0.258)

= Rs 5,297 + Rs 2,580 = Rs 7,877

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