Question

Within Year, Inc. has bonds outstanding with a $1,000 par value and a maturity of 39 years. The bonds have an annual coupon rate of 8.0% with semi-annual coupon payments. You would expect a quoted annual return of 9.0% if you purchased these bonds. What are the bonds worth to you

Answer 1

$892.48

Step-by-step explanation:

Time = 39 years*2 = 78 periods

Coupon rate = 8%/2 = 4%

Coupon payment = 0.04*1,000 = $40

Annual return = 9%/2 = 4.5%

FV= 1,000, PMT= 40, N= 78, I/Y= 4.5

Worth of bond = PV(Fv, Pmt, N, I/Y)

Worth of bond = PV(1000, 40, 78, 4.5%)

Worth of bond = $892.48