Introduction to Corporate Finance

PArT 2: VALUATION, rISk AND reTUrN

FIGUre 4.1 TIME LINE FOR BOND VALUATION (ASSUMING ANNUAL INTEREST PAYMENTS)

Platypus United 9.125% coupon, $1,000 face value bond, maturing at end of 2022; required return equals 8%

2011 2012 2013 2014 2020 2021 2022

$84.49

$78.23

$72.44

..

..

..

..

.

$45.65

$42.27

$39.14

$91.25 $91.25 $91.25 .............. $91.25 $91.25 $91.25 $1,000

End of year

$ 651.43

+

$ 428.88

$ 1,080.31 Price

................

Calculator

Input Function

–1,000 FV

–91.25 PMT

11 N

8 I

CPT

PV

Solution 1,080.31

Formula B5: PV(B4,B3,B2,B1)

Present value $1,080.31

Number of periods 11

–$91.25

–$1,000

Payment

Future value

Row

Column

Spreadsheet

1

2

3

4 Interest rate 8%

5

6

A B

example