A corporate bond is 8% 1000$ par, 5 year semi annual. The market rate of return...

A corporate bond is 8% 1000$ par, 5 year semi annual. The market rate of return is 10%. What is the price of the bond? show the work on excel

Expert Solution

Correct Answer:

Price of Bond : $ 923

Working:


		Annual Rate	Applicable rate		Face Value	$ 1,000
	Market Rate	10.00%	5.00%		Term (in years)	5
	Coupon Rate	8.00%	4.00%		Total no. of interest payments	10
Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 1,000	at	5.00%	Interest rate for	10	term payments
PV of $1	0.6139
PV of	$ 1,000	=	$ 1,000	x	0.61391	=	$ 613.91	A

Interest payable per term	At	4.0%	on	$ 1,000
Interest payable per term	$ 40

PVAF of 1$	for	5.0%	Interest rate for	10	term payments
PVAF of 1$	$ 7.7217
PV of Interest payments	=	$ 40.00	x	7.72173	=		$ 308.87	B

				Bond Value (A+B)			$ 923

End of Answer.

Thanks

ekkarill92 answered 2 years ago

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