Question

An insurance company purchases corporate bonds in the secondary market with six years to maturity. Total par value is $55 million. The coupon rate is 11 percent, with annual interest payments. If the expected required rate of return in 4 years is 9 percent, what will the market value of the bonds be then?

Answer 1

$56,935,022.30

Step-by-step explanation:

Using a Financial calculator, use the following inputs to find the market value of the bond 4 years later;

N = 6 -4 = 2

I/Y = 9%

PMT = 11% *55,000,000 = 6,050,000

FV = 55,000,000

then CPT PV = $56,935,022.30

Therefore, these corporate bonds will be worth $56,935,022.30 in four years.