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lara31 [8.8K]
2 years ago
11

Oil Well Supply offers a 8 percent coupon bond with semiannual payments and a yield to maturity of 8.73 percent. The bonds matur

e in 9 years. What is the market price per bond if the face value is $1,000?
Business
1 answer:
g100num [7]2 years ago
7 0

Answer:

Market price today   $955.1347

Explanation:

To know the current market price we will calculate the present value ofthe cuopon payment and the maturity at the yield to maturity rate of 8.73%

<u>Present value of the annuity</u>

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

Cupon Payment: 1,000 face value x 8% / 2 payment per year = 40

time = 9 years x 2 payment per year = 18

rate = 8.73% = 0.0873 = 0.0873/2 = 0.04365

40 \times \frac{1-(1+0.04365)^{-18} }{0.04365} = PV\\

PV $491.6747

<u></u>

<u>Present value of the maturity</u>

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

Maturity = face value =   1,000.00

time   18.00

rate  0.04365

\frac{1000}{(1 + 0.04365)^{18} } = PV  

PV   463.46

<u>Now we add both together to get the present value of the bond</u>

PV c   $491.6747

PV m   $463.4599

Total   $955.1347

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Design Interiors has a cost of equity of 14.9 percent and a pretax cost of debt of 8.6 percent. The firm's target weighted avera
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