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The face value for WICB Limited bonds is $250,000 and has a 6 percent annual coupon....

The face value for WICB Limited bonds is $250,000 and has a 6 percent annual coupon. The 6 percent annual coupon bonds matures in 2035, and it is now 2020. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 10 percent. How much should Karen sell her bonds today?

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Expert Solution

The price at which the bonds should be sold for can be calculated as the present value of bonds

Price = Coupon * ((1 - (1+R)^-N)/R+ Face value/(1+R)^N

Face value = 250000

Coupon = 250000 * 6% = 15000

R = 10%

N = 2035 - 2020 = 15 years

Price of bond = 15000 * ((1 - (1+10%)^-15)/10% + 250000/(1+10%)^15

= 114091.19 + 59848.01

= 173939.20

There fore, Karen should sell the bonds today for 173939.20

jeff jeffy answered 2 years ago
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