Question

Marshall Company is issuing eight-year bonds with a coupon rate of 6.14 percent and semiannual coupon payments. If the current market rate for similar bonds is 9.84 percent. What will be the bond price? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and bond price to 2 decimal places, e.g. 15.25.)

Bond price $ ?

If company management wants to raise $1.25 million, how many bonds does the firm have to sell? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and number of bonds to 0 decimal places, e.g. 5,275.)

Number of bonds bonds ?

Answer 1

1)

Assuming face value to be $1000

Semi annual rate = [(6.14 / 100) * 1000] / 2 = 30.70

Number of periods = 8 * 2 = 16

Semi annual rate = 9.84% / 2 = 4.92%

Bond price = Coupon * [1 - 1 / (1 + rate)^time] / rate + Face value / (1 + rate)^time

Bond price = 30.7 * [1 - 1 / (1 + 0.0492)^16] / 0.0492 + 1000 / (1 + 0.0492)^16

Bond price = 30.7 * [1 - 0.46373] / 0.0492 + 463.73245

Bond price = 30.7 * 10.89975 + 463.73245

Bond price = $798.35

2)

Number of bonds = 1,250,000 / 798.38

Number of bonds = 1,566