A 3-year bond with 10% coupon rate and $1000 face value yields 8%. Assuming annual coupon payment, calculate the price of the bo
nd. Group of answer choices
1 answer:
The group of answer choices are missing. Following is the complete question.
A 3-year bond with a 10% coupon rate and $1000 face value yield-to-maturity of 8%. Assuming annual coupon payments, calculate the price of the bond. Group of answer choices
A. $857.96
B. $951.96
C. $1000.00
D. $1051.54
Answer:
The answer is d. $1051.54
Explanation:
To calculate the price of the bond, we need to first calculate the coupon payment per period. The bonds are annual bonds so the coupon payment is per year.
Coupon Payment = 1000 * 0.10 = $100
Total periods = 3
The formula to calculate the price of the bonds today is attached.
Bond Price = 100 * [( 1 - (1+0.08)^-3) / 0.08] + 1000 / (1+0.08)^3
Bond Price = $1051.54
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Answer:
The value of the stock is $36.53
Explanation:
To calculate the value of the stock, we'll use the formula
......(a)
where, P = price of stock
D1 = Estimated dividend for next period
r = required rate of return
g = growth rate
First we will calculate D1,
Do is the dividend whic the firm just paid = $4.30
D1 = Do(1+g)
D1 = 4.30(1+2.68)
D1 = $4.41
Substituting the values in the formula....(a)
P = 4.41 / (14.75% - 2.68%)
P = 4.41 / 12.07%
P = $36.53