XYZ Corporation 10-year bonds paid its annual coupon of $110 yesterday. There are seven (7) annual coupons remaining. The bond h

Question

3 years ago

5

as a par value of $1,000. If similar bonds offer a rate of return of 7 percent, how much should these XYZ bonds sell for in the bond market?

1 answer:

Brums [2.3K] · Answer 1 · 2022-07-16T20:24:52+03:00

Answer:

Price of the bond is $1,215.57

Explanation:

Price of the bond is actually the present value of all cash flows of the bond. Price of the bond is calculated by following formula:

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Price of the Bond = $110 x [ ( 1 - ( 1 + 7% )^-7 ) / 7% ] + [ $1,000 / ( 1 + 7% )^7 ]

Price of the Bond = $592.82 + $622.75

Price of the Bond = $1,215.57