Valuation - corporate bond A $1,000 corporate bond with 10 years to maturity pay
ID: 2636798 • Letter: V
Question
Valuation - corporate bondA $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return is a) 7.2% and b) 10%.
What is the current selling price for a) and b)?
Please show all work. Thank you. Valuation - corporate bond
A $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return is a) 7.2% and b) 10%.
What is the current selling price for a) and b)?
Please show all work. Thank you.
What is the current selling price for a) and b)?
Please show all work. Thank you.
Explanation / Answer
Bond Issuance Price = Present value of Bond face value + PV of Bond annuity payment
The PV factors can be found in PV excel tables online. The effective rate used is the market rate
10 yrs semi annual means 20 periods and coupon and market interest rates will be 4% and 3.6%
a) Price = 1000 * 0.493 + 40 * 14.085 = 1056
b) Price = 1000 * 0.377 + 40 * 12.46 = 875
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