Question

In: Finance

Cyberdyne Systems is issuing a series of coupon bonds to raise $250M to fund research and...

Cyberdyne Systems is issuing a series of coupon bonds to raise $250M to fund research and development at its Skynet division. Each bond will have a face value of $1,000 and will mature in 10 years. The bonds will pay semi-annual coupons with a coupon rate of 6.5%. The yield to maturity on the bonds is 10%. What is the fair price for one of the bonds?

A) $700.23

B) *$781.91

C) $876.54

D) $933.41

E) $1,000.00

The answer is B, please show the work.

Solutions

Expert Solution

Since there are semi annual coupon payment so interest rate will be 3.25%, yield will be 5%, number of years to maturity will
be 20 years
Statement showing Fair price of one bond
Particulars Time PVf @5% Amount PV
Cash Flows (Interest)                          1.00                   0.9524          32.50                 30.95
Cash Flows (Interest)                          2.00                   0.9070          32.50                 29.48
Cash Flows (Interest)                          3.00                   0.8638          32.50                 28.07
Cash Flows (Interest)                          4.00                   0.8227          32.50                 26.73
Cash Flows (Interest)                          5.00                   0.7835          32.50                 25.46
Cash Flows (Interest)                          6.00                   0.7462          32.50                 24.25
Cash Flows (Interest)                          7.00                   0.7107          32.50                 23.10
Cash Flows (Interest)                          8.00                   0.6768          32.50                 22.00
Cash Flows (Interest)                          9.00                   0.6446          32.50                 20.95
Cash Flows (Interest)                        10.00                   0.6139          32.50                 19.95
Cash Flows (Interest)                        11.00                   0.5847          32.50                 19.00
Cash Flows (Interest)                        12.00                   0.5568          32.50                 18.10
Cash Flows (Interest)                        13.00                   0.5303          32.50                 17.24
Cash Flows (Interest)                        14.00                   0.5051          32.50                 16.41
Cash Flows (Interest)                        15.00                   0.4810          32.50                 15.63
Cash Flows (Interest)                        16.00                   0.4581          32.50                 14.89
Cash Flows (Interest)                        17.00                   0.4363          32.50                 14.18
Cash Flows (Interest)                        18.00                   0.4155          32.50                 13.50
Cash Flows (Interest)                        19.00                   0.3957          32.50                 12.86
Cash Flows (Interest)                        20.00                   0.3769          32.50                 12.25
Cash flows (Maturity Amount)                        20.00                   0.3769    1,000.00               376.90
Fair Price               781.91
Therefore answer is B) $781.91

jeff jeffy answered 2 years ago
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