Question

a 2-year bond was issued at 102.43 for $168,067. the coupon rate of the bond was 9% and the market/effective was 7%. the bond pays interest semi-annually. what is the face value of the bond?

Answer 1

To calculate the face value of the bond, we need to find the present value of all the future cash flows from the bond. The face value of the bond is approximately $157,502.

Step-by-step explanation:

To calculate the face value of the bond, we need to find the present value of all the future cash flows from the bond. The bond pays interest semi-annually, so it will pay two coupons per year. Each coupon is $168,067 x 9% / 2 = $7,561. The present value of the coupons can be calculated using the formula for present value of an annuity:

Face Value = Present Value of Coupons + Present Value of Principal

We can use the formula:

Face Value = $7,561 x (1 - (1 + 7%)^-4) / 7% + $168,067 / (1 + 7%)^4

Calculating this expression, the face value of the bond is approximately $157,502.