Question

I need help with Finance, anyone knows Finances?
Is about bond price and numbers of bond.

Thanks!

Answer 1

bring it on :)

Answer 2

Marshall Company is issuing eight-year bonds with a coupon rate of 7.62 percent and semiannual coupon payments. If the current market rate for similar bonds is 8.48 percent.

What will be the bond price? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and bond price to 2 decimal places, e.g. 15.25.)
Bond price $


If the company wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and number of bonds to 0 decimal places, e.g. 5,275.)
Number of bonds
bonds

Answer 3

I got the bond pricerice or Semiannual coupon$1000x(0.0762/2)=38.1

Answer 4

@electrokid you got scare?? Lol!

Answer 5

Helloo my life saver @jim_thompson5910... Do you know Finance? ;)

Answer 6

not really, but I can find formulas and try to work with them

Answer 7

do you have any formulas to work with?

Answer 8

I do have the formulas but I know there is something that i am missing..

Answer 9

well I found a page that has a formula for the bond price here

http://www.zenwealth.com/BusinessFinanceOnline/BV/BondPrice.html

Answer 10

but that formula needs the face value, which is what we need I think

Answer 11

Waoooo,, mine is different

Answer 12

show me your formula

Answer 13

@rocal2 lol.. was out
but,
\[A=P(1+r)^n\]

Answer 14

so, semi annually means twice a year
in 8 years, this happens 8*2=16 times
so, n=16
P = prinsipal amount=(8.45*1000)/2

Answer 15

kappesh?

Answer 16

in your calculations, you used the coupon rate to find the present value.. it should be the present rate..

Answer 17

wait!! you mean 8.48??

Answer 18

oh right. yes.

Answer 19

ok, then???

Answer 20

so, you get P=4225
then r = 0.0762
\[A=4225(1+0.0762)^{18}=$15845.3\]

Answer 21

ooh waui...
my principal is wrong!

Answer 22

i should have taken 0.0848

Answer 23

I was thinking that those number are to big.

Answer 24

:)

Answer 25

so, it should be divided by 100
A = $158.45

Answer 26

Hold on!!

Answer 27

So I divided 0.0848/100.?

Answer 28

no.. \(P=42.25\)
so, the final answer for \(A\) gets divided by a 100.
and we get \(A=$158.45\)

Answer 29

Gotcha!! now

Answer 30

awesome

Answer 31

ok, got that!!

Answer 32

So now we added them all?

Answer 33

simply stated,
total value = number of bonds * value for each bond
so,
\[1,000,000=n\times158.45\\\implies n={1,000,000\over158.45}\]

Answer 34

So in my case N is 42.25* Value $158.45?

Answer 35

No wait...! Number are too big again..

Answer 36

isnt N=6312?

Answer 37

Not sure!!

Answer 38

I need Bond price and numbers of bonds!

Answer 39

In my example are similar that this one and the numbers are smaller.

Answer 40

I only have one attempt. :( I don't want to risk it.. lol!

Answer 41

well,
each bond yields = 158.45+42.25=$203.7
how many such bonds will raise $1,000,000?
\[N=\frac{1,250,000}{203.7}=6137\rm{bonds}\]

Answer 42

Ok, sound better, but wait let me see. if is good!! :s

Answer 43

☠

Answer 44

Wrong answer.. I can't even see the right one.. I am so confuse.

Answer 45

:(

Answer 46

the first one is good, right?

Answer 47

In my examples the price is around 912!
and the numbers of bond is around 1300..

Answer 48

Noo all of them are wrong! :(

Answer 49

whaat!!!

Answer 50

Yep!! :(
Check the formula that I put above. and I do have the examples.

Answer 51

Does it say anywhere that the face value of the bond is initially $1,000 ?

That's the only thing that doesn't fit. I'm not sure where the 1000 is coming from.

Answer 52

No, he just appeared and disappeared!! lol!! but I just found out that FV is 1000..

Answer 53

but how do you know the future value is $1,000?

does it say that anywhere or does it give you the present value?

Answer 54

you start assuming the value to be 1000 if it is not given..

Answer 55

Correct!!

Answer 56

why assume 1000?

Answer 57

seems arbitrary to me

Answer 58

thats Wall Street my friend.. its a fact

Answer 59

hmm that's why I don't like finance lol

Answer 60

100 is just as valid in my book

Answer 61

I know it's tricky!!

Answer 62

the bond prices and share values start with a 1000
then based on many factors, they start to vary

Answer 63

anyways, I found this page

http://www.chegg.com/homework-help/questions-and-answers/marshall-company-issuing-year-bonds-coupon-rate-762-percent-semiannual-coupon-payments-cur-q3826705

idk if it will help at all

Answer 64

so any bond will always start with a face value of $1,000?

that seems too convenient

Answer 65

well, the evaluation starts at a 1000 and the market makes the changes

Answer 66

Thanks! @jim_thompson5910 but I already check that website... that is actually me!! Lol!!

Answer 67

I know is a fact that we have to use 1000, when it is not given.

Answer 68

wouldn't a smaller company need less money? so the face value for a smaller company would lower the face value

or what if they want to issue more bonds to more people, so they'd lower the price

it just seems odd why they have to start at $1,000 when they could easily start at something like $100

Answer 69

oh what an odd coincidence rocal2 lol

Answer 70

so that answer on that page is definitely wrong too?

Answer 71

Yes, he had from Coursehero.com and tried to change the numbers... lol!

Answer 72

i gotcha

Answer 73

I just don't understand where they got number from? please revise the attached file

Answer 74

which number

Answer 75

ok i see that the default assumed value is $1,000...still don't know why, but its just something to memorize I guess


"A bond selling at par has a coupon rate such that the bond is worth an amount equivalent to its original issue value or its value upon redemption at maturity. This amount is typically $1000 per bond."


http://en.wikipedia.org/wiki/Par_value

Answer 76

378.70+533.91

Answer 77

I followed the formulas and get closer to those numbers.. but not exact.. WHYYY?? :(

Answer 78

are you using this formula

http://users.wfu.edu/palmitar/Law&Valuation/chapter%204/4-2-2.htm

look under the "Semiannual interest" section

Answer 79

Let me see..

Answer 80

Bonds are a bit confusing because their value is affected by the current yield. You have to give someone a discount if you want them to buy a bond with a interest rate lower than the bond you're selling.

Answer 81

@jim_thompson5910 I am using the semiannual interest...

Answer 82

yes I know rocal2, so is your formula similar to the one given in the link I just posted?

Answer 83

yeah that makes sense wio, obviously they would choose the higher interest rate bond...so you have to lower the price to compete

but the thing that doesn't make sense is why is the starting point $1,000

Answer 84

Ohh, yes they are similar..

Answer 85

But I think this one more is simple..

Answer 86

which one, your formula?

Answer 87

Isn't it just an example?

Answer 88

http://assets.openstudy.com/updates/attachments/514e272ce4b0d02faf5afef9-rocal2-1364083493266-pricebondformulas.png..

Here @wio and @jim_thompson5910

Answer 89

that link doesn't work because you have two dots after the "png"

but this one does

http://assets.openstudy.com/updates/attachments/514e272ce4b0d02faf5afef9-rocal2-1364083493266-pricebondformulas.png

Answer 90

thanks though

Answer 91

Ups!! Sorry!

Answer 92

That is actually the exact examples but with differents numbers.

Answer 93

Anyway, where are we at?

Answer 94

@wio can you check the example that Jim posted in the link, and tell me where they got the 378.70 from?

Answer 95

which one?

Answer 96

http://assets.openstudy.com/updates/attachments/514e272ce4b0d02faf5afef9-rocal2-1364083493266-pricebondformulas.png