Question

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Meredith Company issued 13-year bonds three years ago at 5%coupon rate. The market interest rate...

  1. Meredith Company issued 13-year bonds three years ago at 5% coupon rate. The market interest rate for the bonds is 7.5%. What is the current bond's price?

    a. $ 832.22 b. $ 922.07 c. $ 817.51 d. $1,005.96 e. $ 826.30

Solutions

Expert Solution

Face/Par Value of bond = $1000

Semi-Annual Coupon Bond = $1000*5%*1/2

= $25

No of years to maturity from now = 13 years - 3 years = 10

No of Coupon payments = No of years to maturity from now*2 = 10*2

= 20

Current Market interest rate(YTM) = 7.5%

Semi-annual YTM = 7.5%/2 = 3.75%

Calculating the Market price of Bond:-

Price = $347.405 + $478.892

Price = $826.30

So, the bond currently worth is $826.30

Option E

jeff jeffy answered 2 years ago
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