Question
In: Finance
A Canadian company issues an 8-year term bond with face value of $1,000 and 6% coupon...
A Canadian company issues an 8-year term bond with face value of $1,000 and 6% coupon rate. If the market prevailing effective rate of interest is 5.75%, what is the price an investor will have to pay? Note: The bond pays a $60 coupon (or interest) payment at the end of each of the 8 years and pays the face value at the end of the 8 years.
A.$1,150.00
B.$1,200.00
C.$1,015.85
D.$1,215.00
Solutions
Expert Solution
Value of Bond = PV of CFs from it.
| Year | CF | PVF @5.75% | Disc CF |
| 1 | $ 60.00 | 0.9456 | $ 56.74 |
| 2 | $ 60.00 | 0.8942 | $ 53.65 |
| 3 | $ 60.00 | 0.8456 | $ 50.74 |
| 4 | $ 60.00 | 0.7996 | $ 47.98 |
| 5 | $ 60.00 | 0.7561 | $ 45.37 |
| 6 | $ 60.00 | 0.7150 | $ 42.90 |
| 7 | $ 60.00 | 0.6761 | $ 40.57 |
| 8 | $ 60.00 | 0.6394 | $ 38.36 |
| 8 | $ 1,000.00 | 0.6394 | $ 639.38 |
| Value of Bond | $ 1,015.68 | ||
Option C is correct.
jeff jeffy answered 3 days agoRelated Solutions
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