Question

What is the value of $1000 par value 8 3/8% Marriott Corporation bond for the for each of the following required rates of return and assuming that the investor will hold the bond to maturity assume the coupon is paid semiannually (every six months) and the mature the bond matures in three years

Answer 1

Answer:

a. The bond Price = $1,050.37

b. The bond Price = $927.29

Explanation:

Missing question: a. 6.50%  b. 11.30%

A. Face value = 1,000

Coupon rate = (8+3/8)% = 8.375%

Years = 2

PMT = 1000*8.375% / 2 = 41.88

No of years to maturity = 3

Number of compounding period = 6

Market rate of return = 6.50%

Market rate of return per period = 6.50%/2 = 3.25%

The bond Price = PV(Rate, Nper, PMT, FV)*-1

The bond Price = PV(3.25%, 6, 41.88, 1000)*-1

The bond Price = $1,050.37

B. Face value = 1,000

Coupon rate = (8+3/8)% = 8.375%

Years = 2

PMT = 1000*8.375% / 2 = 41.88

No of years to maturity = 3

Number of compounding period = 6

Market rate of return = 11.30%

Market rate of return per period = 6.50%/2 = 5.65%

The bond Price = PV(Rate, Nper, PMT, FV)*-1

The bond Price = PV(5.65%, 6, 41.88, 1000)*-1

The bond Price = $927.29