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nekit [7.7K]
3 years ago
5

Moerdyk Corporation’s bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest ra

te is 5%, based on semiannual compounding. What is the bond’s price?
Business
1 answer:
azamat3 years ago
7 0

Answer:

The price of the bonds is $ 1,276.

Explanation:

The value of bond or issue price can be calculated by discounting all future cash flow using effective rate of retun. Detail calculations are given below.

Future Value = Redemption present value (RPV) + Present value of interest   (PVI)

RPV = 1,000 (1+5%)^-15 = $ 481 -A

PVI = 36.25 * Annuity factor  =$ 759 -B

Future Value = A + B = $ 1,276  

Annuity factor = (1- (1+i%)^-n)/i% = (1- (1+5%/2)^-30)/(5%/2) = 20.9303

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