You are considering buying bonds in ACBB, Inc. The bonds have a par value of $1,000 and mature in 35 years. The annual coupon ra

Question

3 years ago

6

You are considering buying bonds in ACBB, Inc. The bonds have a par value of $1,000 and mature in 35 years. The annual coupon ra

te is 20.0% and the coupon payments are annual. If you believe that the appropriate discount rate for the bonds is 17.0%, what is the value of the bonds to you

Business

1 answer:

Tanzania [10] · Answer 1 · 2022-06-28T12:58:44+03:00

Answer:

Bond Price= $121.27

Explanation:

Giving the following information:

Face value= $1,000

Coupon= 0.2*1,000= $20

Maturity= 35 years

Discount rate= 17%

<u>To calculate the price of the bond, we need to use the following formula:</u>

<u></u>

Bond Price= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price= 20*{[1 - (1.17^-35)] / 0.17} + [1,000/(1.17^35)]

Bond Price= 117.16 + 4.11

Bond Price= $121.27