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Likurg_2 [28]
3 years ago
8

BOND VALUATION Asiana Fashion's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par val

ue; the coupon interest rate is 8% and thebyield to maturity is 9%.What is the bond's current market price?​
Mathematics
1 answer:
pishuonlain [190]3 years ago
3 0

Answer:

$935.76

Step-by-step explanation:

BOND VALUATION Asiana Fashion's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8% and thebyield to maturity is 9%.What is the bond's current market price?​

Step 1

We find the Present value factor of sum

The formula =

(1 + i)^n

Where

i = maturity rate = 9% = 0.09

n = number of years = 10 years

Present Value = ( 1 + 0.09)^-10

= 0.4224

Step 2

We find the present value factor of annuity

The formula is given as:

1 - (1+i)^-n / i

i = maturity rate = 9% = 0.09

n = number of years = 10 years

= 1 - (1 + 0.09)^-10 /0.09

= 1 - 0.4224 /0.09

= 0.5775 /0.09

= 6.417

Step 3

The bond's current market price is calculated as:

= PV factor of Sum × Par Value + PV factor of annuity × coupon payment

Coupon payment is calculated as:

= Coupon interest × par value

= 8% × 1000

= 80

Hence,

= 0.4224 × 1,000 + 6.417 × 80

= 422.4 + 513.36

= 935.76

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