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October 5th, 2008, 08:31 PM  #1 
Newbie Joined: Oct 2008 Posts: 4 Thanks: 0  calculate bonds value. only for smart kids
Difficult question. Only for smart kids! Company has a level coupon bond with 9% coupon rate; interest is paid annually. The bond has 20 years to maturity and a face value of $ 1000. Similar bonds currently yield 7%. By prior agreement the company will skip the coupon interest payment in year 8,9, and 10. These payments will be repaid without interest at maturity. What is the bonds value? 
October 5th, 2008, 08:44 PM  #2 
Global Moderator Joined: Nov 2006 From: UTC 5 Posts: 16,046 Thanks: 938 Math Focus: Number theory, computational mathematics, combinatorics, FOM, symbolic logic, TCS, algorithms  Re: calculate bonds value. only for smart kids
I've never taken financial mathematics, but comparing it to the straightup 7% bond I'd say it's worth $1064.79. What do you get and why?

October 6th, 2008, 11:52 AM  #3 
Senior Member Joined: May 2008 Posts: 299 Thanks: 81  Re: calculate bonds value. only for smart kids
I agree with CRGreathouse. This is a difficult question? 
October 6th, 2008, 06:57 PM  #4 
Newbie Joined: Oct 2008 Posts: 4 Thanks: 0  Re: calculate bonds value. only for smart kids
answer must be 1134,56

October 6th, 2008, 07:37 PM  #5 
Newbie Joined: Oct 2008 Posts: 4 Thanks: 0  Re: calculate bonds value. only for smart kids
without skipping interest answer will be like this: N = 20 FV= 1000 i = 7 pmt = 90 pv = ? > 1211,88 
October 7th, 2008, 09:36 AM  #6  
Senior Member Joined: May 2008 Posts: 299 Thanks: 81  Re: calculate bonds value. only for smart kids Quote:
Quote:
If you’re familiar with annuity formulas and notations, it should be clear to you that the value of your first problem is equal to the present value of the final redemption payment (face value) plus the present value of 17 coupon payments (the shorthand notation of which I’ve already shown) at the current yield rate of 7%. Now that I’ve shown you a portion of my hand, I believe it’s time for you to show us some of yours by justifying the calculations behind your “[color=#FF0000]1134,56[/color]”.  
October 7th, 2008, 10:44 AM  #7  
Global Moderator Joined: Nov 2006 From: UTC 5 Posts: 16,046 Thanks: 938 Math Focus: Number theory, computational mathematics, combinatorics, FOM, symbolic logic, TCS, algorithms  Re: calculate bonds value. only for smart kids Quote:
Regardless, I'm moving this thread to Mathematics & Economics. Little as economics has to do with financial mathematics, number theory has less yet to do with it.  

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