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A company has two different bonds currently outstanding. Both bonds have a face value of R100....

A company has two different bonds currently outstanding. Both bonds have a face value of R100. Bond A matures in 10 years. The bond makes no coupon payments for the first four years and then pays R8.50 semi-annually for the subsequent four years, and finally pays R10.50 semi-annually for the last two years. Bond B also matures in 10 years; it makes coupon payments of R4.50 semi-annually over its life. The yield to maturity on both bonds is 12% per annum, compounded semi-annually.

What is the current price of each bond?

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Expert Solution

Hello,

In this case valuation would be done similar to DCF approach.

Value of Bond A is R127.7 and Value of Bond B is R56.24.

Please see below snapshot for details:

jeff jeffy answered 1 week ago
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