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trapecia [35]
3 years ago
9

Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannual, and mature in

13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent? A. $989.50 B. $994.56 C. $1, 015.72 D. $1.018.27E. $1, 020.00
Business
1 answer:
olganol [36]3 years ago
4 0

Answer:

R = 7% x $1,000 = $70

Po= R/2(1-(1+Kd/m)-nm/Kd/m + FV/(1+Kd/m)nm

Po = 70/2(1-(1+0.0682/2)-13.5x2/0.0682/2 + 1,000/(1+0.0682/2)13.5x2

Po = 35(1-(1+0.0341)-27/0.0341 + 1000/(1+0.0341)27

Po = 35(17.4663) + 1,000/2.4728

Po = $611.3205 + $404.40

Po = $1,015.72

The correct answer is C

Explanation:

The current price of a bond is equal to present value of coupon plus the present value of face value of the bond. The bond pays semi-annual interest, thus, we will divide the coupon by 2 and then determine the present value. The bond yield will also be divided by 2.

Po = Current price of the bond, R = Coupon, Kd = Bond yield, FV = Face value, n = Bond maturity and m = No of times coupon is paid in a year

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Derivative Classification can be defined as the process of classifying security information or data so as to enable easy marking of information from the source document or source information.

Based on the information given jamal is making use of Derivative Classification as this will enable him to know whether the information in the document has been classified.

Therefore what describes Jamal's work is: Derivative Classification.

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Evidence based management encourages managers to make facts and logic the foundation of their approach to decision-making.

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