The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The

Question

marta [7]

3 years ago

14

The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The

yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?

Business

1 answer:

geniusboy [140] · Answer 1 · 2021-11-09T13:15:53+03:00

Answer:

$17,883,320

Explanation:

Rate of coupon 7.0% par value = FV$1,000Yrs to maturity 10 years Period/Yr2Periods = Years × 2 = N20Going annual rate = rd= YTM11.0%Periodic rate = rd/2 = I/YR5.5%Coupon rate × Par/2 = PMT$35.00Price of the bonds = PV$760.99. To Determine the number of bonds: Book value on balance sheet$23,500,000Par value$1,000Number of bonds = Book value/Par value23,500Calculate the market value of bonds:Mkt value = PV × Number of bonds = $17,883,320