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nekit [7.7K]
3 years ago
11

Bond Valuation with Semi-Annual Payments: Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The

bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
Business
1 answer:
Sergeeva-Olga [200]3 years ago
8 0

Answer:

The current Price of the bond will be 1,006.20

Explanation:

We have to calculate the present value of the bonds cash flows at a 8.5% rate

<u>Present value ofthe interest service:</u>

C * \frac{1-(1+r)^{-time} }{rate} = PV\\

100 * \frac{1-(1+.085)^{-10} }{0.085} = PV\\

PV = $563.9183

<u>Present Value of the principal</u>

\frac{Principal}{(1 + rate)^{time} } = PV

\frac{1,000}{(1 + 0.85)^{10} } = PV

PV = $422.2854

<u>Now we sum both concepts</u>

422.2854 + 563.9183 = 1006.2037 = 1,006.20

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