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xenn [34]
3 years ago
12

TravelEasy Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the

current yield to maturity is 8%, what is the firm's current price per bond?
Business
1 answer:
rosijanka [135]3 years ago
5 0

Answer:

Coupon (R) = 14% x $1,000 = $140

Bond yield (kd) = 8% = 0.08

No of years (n) = 30 years

No of compounding periods (m) = 2

Po= R/m(1-(1+Kd/m)-nm/Kd/m + FV/(1+Kd/m)nm

Po = $140/2<u>(1-(1+0.08/2)</u>-30x2 + 1,000(1+0.08/2)30x2

                         0.08/2

Po = $70<u>(1-(1+0.04)</u>-60 + 1,000/(1 + 0.04)60

                       0.04

Po = $70<u>(1-(1.04)</u>-60 + 1,000/(1.04)60

                 0.04

Po = 70(22.6235) + 95.06

Po = $1,678.71

Explanation:

The price of a bond is equal to the present value of coupon plus the present value of the face value.

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