The bond has a face value of $1,000 with a coupon rate of 9% paid semi-annually. Also, the bond will mature in next 8 years with a required return of 4%. Bonds are issued to raise funds for the company. The important characteristic of a bond is that it has a maturity value which is the value the bondholders will get at the end of the maturity period. Also, some bonds carry coupon rate which means the bondholders will get a regular interest cash flow on that bond. The yield to maturity (YTM) of the bond is the required rate of return investors expect on holding the bond till the maturity period. Bond Price is calculated as Bond Price ( V d ) = ∑ I N T N ( 1 + r d ) N + M ( 1 + r d ) N o r , V d = I N T ( 1 − 1 ( 1 + r d ) N r d ) + M ( 1 ( 1 + r d ) N ) Where, INT = coupon payments made N = number of periods M = Maturity or Face value rd = rate of return Vd = Value of the bond

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem 6PROB

Summary Introduction

The bond has a face value of $1,000 with a coupon rate of 9% paid semi-annually. Also, the bond will mature in next 8 years with a required return of 4%.

Bonds are issued to raise funds for the company. The important characteristic of a bond is that it has a maturity value which is the value the bondholders will get at the end of the maturity period. Also, some bonds carry coupon rate which means the bondholders will get a regular interest cash flow on that bond.

The yield to maturity (YTM) of the bond is the required rate of return investors expect on holding the bond till the maturity period.

Bond Price is calculated as

Bond Price(Vd) = ∑INTN(1+rd)N+M(1+rd)Nor,Vd=INT(1−1(1+rd)Nrd)+M(1(1+rd)N)

Where,

INT = coupon payments made

N = number of periods

M = Maturity or Face value

rd = rate of return

Vd = Value of the bond

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Buner Corp’s outstanding bonds, which has a face value of $1,000, have 6 years remaining to maturity. The bond’s coupon rate of interest is 8%, and interest is paid semiannually. If investors require a rate of return equal to 6% to invest in similar risk bonds, what should be the market price of Buner’s bond?

Fine Fishing Lures (FFL) has an outstanding bond with a $1000 face value and a 9 percent coupon rate of interest (paid semiannually). The bond, which was issued 22 years ago, matures in eight years. If investors require a return equal to 4 percent to invest in similar bonds, what is the market value of FFL’s bond?

Lightning Electric’s outstanding bond has a $1000 maturity value and a 4.5 percent coupon rate of interest (paid semiannually). The bond, which was issued five years ago, mature in 10 years. If investors require a return equal to 6 percent to invest in similar bonds, what is the current market value of Lightning’s bond?