One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 6.7% annual coupon bonds at their par value of $1,000. Today,
1 answer:
Answer:
Bond Price = $1115.075775 rounded off to $1115.08
Explanation:
To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is an annual bond, the coupon payment, number of periods and annual YTM or market interest rate will be,
Coupon Payment (C) = 1000 * 0.067 = $67
Total periods (n) = 14
r or YTM = 0.055 or 5.5%
The formula to calculate the price of the bonds today is attached.
Bond Price = 67 * [( 1 - (1+0.055)^-14) / 0.055] + 1000 / (1+0.055)^14
Bond Price = $1115.075775 rounded off to $1115.08
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Taking these two effects together, equilibrium price would rise and there would be an indeterminate effect on equilibrium quantity
Please check the attached image for a graph showing these shifts
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Explanation:
