Question: Calculate the present value of a bond that pays a coupon rate of 4% per year for 15 years, and matures in 15 years at its face value of $1000, using each of the following current market interest rates as the discount rate:(a) 2%; (b) 4%; (c) 7%. Show your calculations. The course textbook provides a present discounted value factor table (PVF, i, n) in Appendix C and a present discounted value factor for an annuity (PVFA, i, n) in Appendix E (Titman et al., 2011, p. A-15 and p. A-19). The 4% coupon rate provides an annuity income of $1000 x .04 = $40 per year until the bond matures in 15 years; then the bond can be surrendered at maturity for its face value. The bond's coupon rate is also called its nominal interest rate.
a) Discount rate at 2% PV = A ( PVFA, i, n) + (Surrender value)