A. Assuming this company already has bonds outstanding, calculate the following: 1. The new value of the

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Question:

A. Assuming this company already has bonds outstanding, calculate the following:

1. The new value of the bond if overall rates in the market increased by 5%

2. The new value of the bond if overall rates in the market decreased by 5%

3. The value of the bond if overall rates in the market stayed exactly the same

B. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasoning.

	Curent Bonds from Financial Statements

	Present Value	PV	($2,963)
	Periods	N	40	Semi-annual payment: 2036-2016 = 20 years *2 = 40 periods
	Interest	I	2.9375	Interest paid semi-annually: 5.875%/2 = 2.9375%
	Payments	PMT	0	This bond does not make regular PMT except for interest
	Future Value	FV		CALCULATING FV (please see help on the right hand side)

1. The new value of the bond if overall rates in the market increased by 5%

	Present Value	PV	($2,963)
	Periods	N	40
	Interest	I		Please adjust interest	5.875%+5% = 10.875%/2 = 5.4375%
	Payments	PMT	0
	Future Value	FV		CALCULATING FV (please see help on the right hand side)


2. The new value of the bond if overall rates in the market decreased by 5%

	Present Value	PV	($2,963)
	Periods	N	40
	Interest	I		Please adjust interest	5.875%-5% = 0.875%/2 = 0.4375%
	Payments	PMT	0
	Future Value	FV		CALCULATING FV (please see help on the right hand side)


3. The value of the bond if overall rates in the market stayed exactly the same
	- identical to CURRENT BOND VALUE from Financial Statements