A $1,000 bond has a coupon rate of 10 percent and matures after eight years. Int

Question

A $1,000 bond has a coupon rate of 10 percent and matures after eight years. Interest rates are currently 7 percent.

What will the price of this bond be if the interest is paid annually? Round your answer to two decimal places.

What will the price be if investors expect that the bond will be called with no call penalty after two years? Round your answer to two decimal places.

What will the price be if investors expect that the bond will be called after two years and there will be a call penalty of one year's interest? Round your answer to two decimal places.

please show your work for all the questions.

Explanation / Answer

Now the Bond has an pricipal pf $1000

Coupn rate = 10%

Maturity = 8 years

Yield =7%

PV(7%, 8,-100,-1000,0) =1179

b Now for the B part the Maturity would change to two years and nothing else will change

PV(7%, 2,-100,-1000,0)= 1054.24

C In this part insetad of getting 100 at maturity investor will also get Rs 100 as penalty from cpmnay as it has called before time'

hence Investor will get 1100 at maturity

PV(7%, 2,-100,-1100,0) = 1141.58

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