Question

Borland, Inc. issues 25-year semi-annual bonds that have a face value of $1,000 and a coupon rate of 7.5%. The current market price for the bonds is $950.00. If your required rate of return is 8.5%, what is the value of one of these bonds to you

Answer 1

Answer: $897.03

Step-by-step explanation:

You can use Excel to calculate this.

The bond is a semi-annual bond so you need to adjust the variable for this first.

Number of periods = 25 * 2 = 50 semi-annual periods

Coupon = 7.5% * 1,000 * 0.5 semi-annual adjustment = $37.50

Yield = 8.5% / 2 = 4.25%

Value to you = $897.03