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Two years ago, Global Airlines sold a $250 million bond issue to finance the purchase of new jet airliners. These bonds were issued in at par value with an original maturity of 12 years and a coupon rate
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33 votes
33 votes
Two years ago, Global Airlines sold a $250 million bond issue to finance the purchase of new jet airliners. These bonds were issued in at par value with an original maturity of 12 years and a coupon rate of 12%. Determine the value today of one of these bonds to an investor who requires a 14% rate of return on these securities. Is it a discount or premium bond and why

User Jaggedcow
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1 Answer

23 votes
23 votes

Answer:

$897

Step-by-step explanation:

Calculation to determine the value today

Using Financial calculator to determine the Present value (PV)

N = (12- 2) = 10 years

I = 14%

PMT =12%*1,000=120

FV = $1000

PV=?

Hence;

PV = $896.68

PV=$897 (Approximately)

Therefore the value today is $897

User Gipouf
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3.0k points
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