Question

In: Finance

MicroDrive has issued bonds that have a 6% coupon rate, payable semiannually. The bonds mature in...

MicroDrive has issued bonds that have a 6% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 5%. What is the current price of the bonds?

Expert Solution

Price of the bond could be calculated using below formula.

P = C/ 2 [1 - {(1 + YTM/2) ^2*n}/ (YTM/2)] + [F/ (1 + YTM/2) ^2*n]

Where,

Face value (F) = $1000

Coupon rate = 0.06

YTM or Required rate = 0.05

Time to maturity (n) = 8 years

Annual coupon C = $60

Let's put all the values in the formula to find the bond current value

P = 60/ 2 [{1 - (1 + 0.05/2) ^-2*8}/ (0.05/ 2)] + [1000/ (1 + 0.05/2) ^2*8]

= 30 [{1 - (1 + 0.025) ^ -16}/ (0.025)] + [1000/ (1 + 0.025) ^16]

= 30 [{1 - (1.025) ^ -16}/ (0.025)] + [1000/ (1.025) ^16]

= 30 [{1 - 0.67362}/ (0.025)] + [1000/ 1.48451]

= 30 [0.32638/ 0.025] + [673.62295]

= 30 [13.0552] + [673.62295]

= 391.656 + 673.62295

= 1065.27895

So price of the bond is $1065.28

-----------------------------------------------------------------------------------------------------------------

Hope this answer your query.

Feel free to comment if you need further assistance. J

jeff jeffy answered 2 years ago

Renfro Rentals has issued bonds that have a 9% coupon rate, payable semiannually. The bonds mature...

Renfro Rentals has issued bonds that have a 9% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 7.5%. What is the price of the bonds? Round your answer to the nearest cent. $

Renfro Rentals has issued bonds that have a 12% coupon rate, payable semiannually. The bonds mature...

Renfro Rentals has issued bonds that have a 12% coupon rate, payable semiannually. The bonds mature in 14 years, have a face value of $1,000, and a yield to maturity of 9%. What is the price of the bonds? Round your answer to the nearest cent.

Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature...

Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 10%. What is the price of the bonds? Round your answer to the nearest cent.

Renfro Rentals has issued bonds that have a 8% coupon rate, payable semiannually. The bonds mature...

Renfro Rentals has issued bonds that have a 8% coupon rate, payable semiannually. The bonds mature in 9 years, have a face value of $1,000, and a yield to maturity of 7.5%. What is the price of the bonds? Round your answer to the nearest cent.

Comco Inc issued bonds that have a 8.5% coupon rate, payable semiannually. The bonds mature in...

Comco Inc issued bonds that have a 8.5% coupon rate, payable semiannually. The bonds mature in 12 years, have a $1,000 face value and a 12% yield to maturity. 1.. What is the price of the bonds? 2. Exactly two years later, you observe the bonds trading at $925, what is the yield to maturity?

The bonds issued by Bluefish Incorporated have a 7.0 percent coupon, payable semiannually. The bonds mature...

The bonds issued by Bluefish Incorporated have a 7.0 percent coupon, payable semiannually. The bonds mature in 10 years and have a $1,000 face value. Currently, the bonds are quoted at 98.9 (thus sell for $989). What is the yield to maturity? (Ch7) a. 4.24% b. 3.97% c. 5.08% d. 6.14% e. 7.16%

2. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds...

2. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 10 years, have a face value of $1,000, and a yield to maturity of 9%. What is the price of the bonds? 3. Wilson Wonders’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $900. What is their yield...

1.) Renfro Rentals has issued bonds that have a 11% coupon rate, payable semiannually. The bonds...

1.) Renfro Rentals has issued bonds that have a 11% coupon rate, payable semiannually. The bonds mature in 11 years, have a face value of $1,000, and a yield to maturity of 7.5%. What is the price of the bonds? Round your answer to the nearest cent. 2.) To complete your last year in business school and then go through law school, you will need $10,000 per year for 4 years, starting next year (that is, you will need to...

Q1. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds...

Q1. Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 18 years, have a face value of $1,000, and a yield to maturity of 7%. What is the price of the bonds? Round your answer to the nearest cent. Q2. The Brownstone Corporation's bonds have 4 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. What is the yield...

1. The bonds issued by Jensen & Son bear a 6 percent coupon, payable semiannually. The...

1. The bonds issued by Jensen & Son bear a 6 percent coupon, payable semiannually. The bond matures in 8 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity? 2. A General Co. bond has an 8 percent coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity? 3. You intend...