Answer:
$935.76
Step-by-step explanation:
BOND VALUATION Asiana Fashion's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8% and thebyield to maturity is 9%.What is the bond's current market price?
Step 1
We find the Present value factor of sum
The formula =
(1 + i)^n
Where
i = maturity rate = 9% = 0.09
n = number of years = 10 years
Present Value = ( 1 + 0.09)^-10
= 0.4224
Step 2
We find the present value factor of annuity
The formula is given as:
1 - (1+i)^-n / i
i = maturity rate = 9% = 0.09
n = number of years = 10 years
= 1 - (1 + 0.09)^-10 /0.09
= 1 - 0.4224 /0.09
= 0.5775 /0.09
= 6.417
Step 3
The bond's current market price is calculated as:
= PV factor of Sum × Par Value + PV factor of annuity × coupon payment
Coupon payment is calculated as:
= Coupon interest × par value
= 8% × 1000
= 80
Hence,
= 0.4224 × 1,000 + 6.417 × 80
= 422.4 + 513.36
= 935.76
