A firm has just issued a bond that has a face value of $1,000, a coupon...

A firm has just issued a bond that has a face value of $1,000, a coupon rate of 8 percent paid semi-annually, and matures in 8 years. The bonds were issued at a discount ($950.35) with a yield to maturity of 8.88%. Assume that 3 years from now, the bond trades to earn an effective annual yield to maturity of 10%. At what price should this bond be trading for at the beginning of year 4?

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Expert Solution

The price should this bond be trading for at the beginning of year 4

= - PV (Rate, Nper, PMT, FV)

= - PV (10%/2, 2 x (8 - 3), 8%/2 x 1000, 1000)

= $ 922.78

jeff jeffy answered 2 years ago

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