Suppose that five years ago Cisco Systems sold a 15-year bond issue that had a $1,000 par value and a 7 percent coupon rate.

Suppose that five years ago Cisco Systems sold a 15-year bond issue that had a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually.

a. If the going interest rate has risen to 10 percent, at what price would the bonds be selling today?

b. Suppose that the interest rate remained at 10 percent for the next 10 years. What would happen to the price of Cisco’s bonds over time?

Solutions

Expert Solution

Calculating Price of Bond,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 35, N = 20, I = 0.10/2]

PV= $813.07

As bond goes towards maturity,bond price will increase and moves towards

jeff jeffy answered 2 years ago

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