Question

AK Inc. is paying 5% coupon rate for its bondholders over the next 8 years. Your required rate of return is 7 percent, how much this bond worth?

Answer 1

Answer: $880.57

Step-by-step explanation:

Assuming Par value of bond is $1,000.

Value of bond = (Coupon * Present value interest factor of annuity, no. years, required return) + Par Value/ (1 + required return)^ no. of years

Coupon = 5% * 1,000 = $50

Value of bond = (50 * 5.9713) + 1,000 / (1 + 7%)⁸

= ‭298.565‬ + 582

= $880.57