Answer:
Jim Busby and Bonds of Disk Storage Systems
The new price of the bond is:
= $21,059
Explanation:
a) Data and Calculations:
Quoted price of bond = $1,180
Face value of bond = $1,000
Coupon interest rate = 14%
Bond's maturity period = 25 years
Current yield to maturity = 12%
Therefore, new price of the bond is computed as follows:
Bond Price = C* (1-(1+r)-n/r ) + F/(1+r)n
where C = Periodic coupon payment = $140 ($1,000 * 14%)
• F = Face / Par value of bond = $1,000
• r = Yield to maturity (YTM) = 12% and
• n = No. of periods till maturity = 25 years
= $140 * (1 – (1+0.12)^-25)/0.12 +$1000/(1+0.12)^25
= $140 * (1 - -17.00)/0.12 + $1,000/17.00
= $140 * (18.00)/0.12 + $1,000/17.00
= $140 * 150 + $59
= $21,000 + $59
= $21,059
