Final answer:
The price of Haswell Enterprises' bond with a 15-year maturity, an 8% semiannual coupon, and a 7.5% market interest rate is determined by calculating the present value of the semiannual coupon payments and the present value of the bond's face value at maturity. Without performing the calculation, we cannot select the correct bond price from the options provided.
Step-by-step explanation:
The bond's price can be calculated using the present value of its future cash flows, which includes both the semiannual coupon payments and the repayment of the bond's face value at maturity. Haswell Enterprises' bonds will pay a semiannual coupon of 8% annual rate (or 4% semiannual rate) on a $1,000 par value, totaling $40 per period. The bonds have 15 years to maturity, and the market's interest rate is 7.5% on a semiannual basis (3.75% per period).
To find the present value of the annuity (coupon payments), we use the present value of annuity formula:
PV of annuity = C * [(1 - (1 + r)^-n) / r]
Where:
- C = Semiannual coupon payment ($40)
- r = Market interest rate per period (0.0375)
- n = Total number of payments (15 years * 2 = 30 payments)
The present value of the maturity amount (face value of the bond) is found using the present value formula:
PV of face value = F / (1 + r)^n
Where:
- F = Face value of the bond ($1,000)
Adding these two present value figures will give us the price of the bond. However, without calculating these values, we cannot determine which of the options provided is the correct bond price. To do so, we would need to calculate both the present value of the annuity and the present value of the face value, and then sum them up to find the bond's current price.