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In: Finance

ABC company had $300,000,000 of debt outstanding at Face Value. The bonds have annual 2% coupon...

  1. ABC company had $300,000,000 of debt outstanding at Face Value. The bonds have annual 2% coupon payments and a remaining life of 8 years to maturity. The bonds just got re-rated and the market determined yield to maturity changed from 5% to 3%. By what amount did the market value of the bond change?

    a.

    $51,168,915 recognized decrease in bond value
    b.

    $51,168,915 recognized increase in bond value
    c.

    $37,109,838 recognized increase in bond value
    d.

    $37,109,838 recognized decrease in bond value

Solutions

Expert Solution

Solution:

The value of the bond when the yield is 5% = 241,831,085.17

The value of the bond when the yield is 3% = 278,940,923.43

Change in Price = 278,940,923.43 - 241,831,085.17 = 37,109,838

The correct option is

c.

$37,109,838 recognized increase in bond value

jeff jeffy answered 3 years ago
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