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77julia77 [94]
3 years ago
9

A 10-year semi-annual coupon bond with an $1000 par value pays an annual coupon rate of 6% and the market requires 8% APR. What

is the appropriate coupon, time period, and discount rate respectively that needs to be used to correctly value this bond?
Business
1 answer:
arlik [135]3 years ago
4 0

Answer:

Coupon= $30 per period.

20 period for semi annual coupon payment.

28.148% discount rate

Explanation:

1.) Coupon rate * face value of bond = coupon

semi annual rate =6%/2=3%

Coupon= 1000 *3%= $30 per period.

2.) t= number of periods = years of maturity * coupon payment semi-annual

t= 10 * 2 = 20 periods.

3. Discount rate formula =C+[(F-P)/t] / (F+P/2)

where C=coupon payment annual

F= face value of security

P=price of security= 1000 *8%=80

t= years of maturity.

so we have⇒ 60+[(1000-80)/10]/(1000+80)/2

=152/540

=28.148%

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Answer:

a. The shareholders will want to tender their shares.

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