Amcor limited has a corporate bond outstanding with 7% coupon semi annual intere

Question

Amcor limited has a corporate bond outstanding with 7% coupon semi annual interest 15 years to maturity and face value of $ 1000.Similar bonds currently yield 13%.By prior agreement the company will skip the coupon payment in year 6,7 and 8 (6 payments in total;the payment at time 6 through to 8.5).These payments will be repaid without interests at maturity.What is the corporate bond's value? Amcor limited has a corporate bond outstanding with 7% coupon semi annual interest 15 years to maturity and face value of $ 1000.Similar bonds currently yield 13%.By prior agreement the company will skip the coupon payment in year 6,7 and 8 (6 payments in total;the payment at time 6 through to 8.5).These payments will be repaid without interests at maturity.What is the corporate bond's value?

Explanation / Answer

the corporate bond's value = coupon (PVIFA(dis. rate, n) + Par value (PVIF(dis rate, n)

= 35 (PVIFA (6.5%, 30) + 1000 (PVIF(6.5%,30) - 35 (Present value of 6 to 8 years interest)

= 35 * 13.0587 + 1000 * 0.1512 - 35 (0.4803 + 0.4251 + 0.3762) = $563.40   

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