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Makovka662 [10]
3 years ago
10

A firm issues two-year bonds with a coupon rate of 6.7%, paid semiannually. The credit spread for this firm's two-year debt is 0

.8%. New two-year Treasury notes are being issued at par with a coupon rate of 3.1%. What should the price of the firm's outstanding two-year bonds be per $100 of face value
Business
1 answer:
nekit [7.7K]3 years ago
8 0

Answer:

$105.34

Explanation:

Given:

  • Face value:  $100
  • Coupon rate of 6.7% semiannually = 6.7%/2 = 3.35% (semi-annually)

=> Coupon payment: $100*3.35% = $3.35

  • Nper: 2*2 =4
  • Yield to maturity is : 3.1% + 0.8% = 3.9%/2 = 1.95% (semi-annually)

Using present value formula in excel

pv=(rate,nper,pmt,fv)

pv = (1.95%, 4, 3.35,100)

pv = $105.34

The price of the firm's outstanding two-year bonds be per $100 of face value is:  $105.34

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