3. To expand its business, the Kingston Outlet factory would like to issue a bond with par value of $1,000, coupon rate of 10 percent, and maturity of 10 years from now. What is the value of the bond if the required rate of return is 1) 8 percent, 2) 10 percent, and 3) 12 percent?

The Market Value of the bond at 8% required rate of return is $1134.

The Interest on the bond will be:

= 1000 * 10% = 100

The Market Value of the bond at 8% required rate of return

= $100(PVIFA i,n) + $1000(PVIFi,n) = $100(6.710) + $1000(0.463)

= $671 +$463

= $1134

The Market Value of the bond  at 12% required rate of return will be:

= $100(PVIFAi,n)+$1000(PVIFi,n) = $100(5.650)+$1000(.322)

= $565 + $322

= $887

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The value of a bond can be calculated by the formula;

r is the required return

n is the number of periods

P is the par value

Coupon = 10% * 1,000 = $100

1. Required return is 8%.

= $1,134.20

2. Required return is 10%

= $1,000

3. Require return is 12%;

= $887.00

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