Question

xiaoke, corp. issued a bond, which will mature in 11 years. With a coupon rate of 15 percent, paying interest semiannually. The bonds par value is 1,000. And, according to this company's risk, investors require a rate of return of 11 percent. Answer the following questions. a. If the interest is paid semiannyally, the value of the bond is g

Answer 1

Answer: $1,251.66

Step-by-step explanation:

Price of a bond is:

= Present value of coupon payments + Present value of par value at maturity

Coupon payments = 15% * 1,000 * 1/2 years

= $75

Yield = 11% / 2 = 5.5%

Number of periods = 11 * 2 = 22 semi annual periods

Coupon payments are annuities so present value is:

Present value of annuity = Amount * (1 - ( 1 + r)^-number of periods) / r)

Bond Price = [75 * ( 1 - (1 + 5.5%)⁻²²/ 5.5%)] + 1,000 / (1 + 5.5%)²²

= $1,251.66