Question

Compute the price of a 4.8 percent coupon bond with 10 years left to maturity and a market interest rate of 7.4 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

Answer:

Price of bond=$820.72

Explanation:

Explanation:

The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).

Value of Bond = PV of interest + PV of RV

Let us assume the bond had a per value of 1000 and also redeemable at par

The value of bond for Jasper Inc can be worked out as follows:

Step 1

Calculate the PV of interest payments

Annual interest payment

= 4.8% ×  1000 = 48

PV of interest payment

= 48  × (1-(1.074)^(-10)/0.074)

= 48 ×6.8955

=330.9855967

Step 2

PV of redemption Value

PV = 1000 × (1.074)^(-10)

= 489.73

Step 3

Price of bond

=330.98 +489.73

=$820.72

Price of bond=$820.72