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October 8th, 2015, 09:13 AM   #1
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financial math help

Hey guys currently working on 2 questions that I am stuck on.

1. A ten-year bond pays 8 % annual interest (paid semiannually). If similar bonds are currently yielding 6 % annually, what is the market value of the bond?

I can find when its not semi annually by doing:

fv= -1000
pmt= -80
n = 10
iy= 6

which gives me 1147.2 but the answer its giving is 1148.77





any help would be much appreciated
thanks!

Last edited by math123321; October 8th, 2015 at 09:35 AM.
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October 8th, 2015, 09:56 AM   #2
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Use n = 20, pmt = -40 and i = 3 ; why? It's semiannual !
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October 8th, 2015, 10:21 AM   #3
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Quote:
Originally Posted by Denis View Post
Use n = 20, pmt = -40 and i = 3 ; why? It's semiannual !
wow, I could of sworn I tried that. Thank you very much.
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October 8th, 2015, 10:29 AM   #4
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Originally Posted by math123321 View Post
wow, I could of sworn I tried that. Thank you very much.
No swearing, my fellow Canuck
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October 8th, 2015, 11:03 AM   #5
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Originally Posted by Denis View Post
No swearing, my fellow Canuck
haha sorry,

I actually have 1 more I am stuck on which is:

a 4 year bond pays 4% annual interest (paid semi annually). It currently sells for 872.25. what is the bonds yield to maturity.

For some reason my mind is going blank on this one.
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October 8th, 2015, 12:45 PM   #6
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That cannot be solved directly; numeric method required.

You need the PV of 1000 + PV of annuity = 20, for 8 periods.
For above to equal 872.25, a semiannual rate of ~3.89%.
I calculated that through a program.
PV 1000 = 736.90
PV 20 * 8 = 135.35
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October 8th, 2015, 01:18 PM   #7
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Quote:
Originally Posted by Denis View Post
That cannot be solved directly; numeric method required.

You need the PV of 1000 + PV of annuity = 20, for 8 periods.
For above to equal 872.25, a semiannual rate of ~3.89%.
I calculated that through a program.
PV 1000 = 736.90
PV 20 * 8 = 135.35
one of the possible answers is 7.78 which is 3.89 muliplied by 2 , so maybe that's it, Just gotta figure out how that was made. I appreciate your help Denis. I have one last question I am completely stuck on and would love any help from you. I am pulling my hair out over here haha.

The common stock paid a dividend of $3.00 per share last year, but the company expected that earnings will grow by 25 percent for the next two years before dropping to a constant 9 percent growth rate afterwards. the required rate of return on a similar common stock is 13 percent.

what is the per-share value of the company's common stock
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October 8th, 2015, 01:20 PM   #8
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would it be 3/(0.13 - 0.09) but then the 25% growth part is throwing me off.
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October 8th, 2015, 03:44 PM   #9
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one of the possible answers is 7.78 which is 3.89 muliplied by 2 , so maybe that's it,.....
Not quite: (1.0389)^2 - 1 = 1.0793 - 1 = .0793 or 7.93%
That's because of the compounding semiannually;
compounding always increases the periodic rate...
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October 8th, 2015, 03:49 PM   #10
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would it be 3/(0.13 - 0.09) but then the 25% growth part is throwing me off.
No, that's not correct; but I don't understand the oroblem,
so I'm not gonna guess!
Perhaps someone else here will ride in to the rescue.

Go here, perhaps you can find out by yourself:
https://www.google.ca/?gws_rd=ssl#q=...+stock+formula

I'm watching the Ottawa Senators...so leave me alone

Last edited by Denis; October 8th, 2015 at 03:53 PM.
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