Question

Within Year, Inc. has bonds outstanding with a $1,000 par value and a maturity of 19 years. The bonds have an annual coupon rate of 15.0% with semi-annual coupon payments. You would expect a quoted annual return of 16.0% if you purchased these bonds. What are the bonds worth to you

Answer 1

Answer: $940.86

Step-by-step explanation:

Coupon payment = Face value * Coupon rate * 1/2 years = $75

Number of periods = 19 years * 2 = 38 semi annual periods

Rate = 16.0%/2 = 8%

Price of a bond is calculated as;

`= Coupon payment * (1 - ( 1 + rate)^(-n) )/(r) + (Par value)/((1 + r)^(n) ) \\\\= 75 * (1 - ( 1 + 0.08)^(-38) )/(0.08) + (1,000)/((1 + 0.08)^(38) )\\\\= 940.855655`

= $940.86