Question

You are considering buying bonds in ACBB, Inc. The bonds have a par value of $1,000 and mature in 35 years. The annual coupon rate is 20.0% and the coupon payments are annual. If you believe that the appropriate discount rate for the bonds is 17.0%, what is the value of the bonds to you

Answer 1

Bond Price​= $121.27

Step-by-step explanation:

Giving the following information:

Face value= $1,000

Coupon= 0.2*1,000= $20

Maturity= 35 years

Discount rate= 17%

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 20*{[1 - (1.17^-35)] / 0.17} + [1,000/(1.17^35)]

Bond Price​= 117.16 + 4.11

Bond Price​= $121.27