A corporate bond with a face value of $100,000 was issued six years ago and there...

A corporate bond with a face value of $100,000 was issued six years ago and there are four years remaining until maturity. The bond pays semi-annual coupon payments of $4500, the coupon rate is 9% pa paid twice yearly and rates in the marketplace are 9.4% pa compounded semi-annually. What is the value of the bond today? a. $98,975.05 b. $98,196.97 c. $100,000.00 d. $98,691.54 e. $84,263.76

Expert Solution

Value of the bond today

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figures

Par Value/Face Value of the Bond [$100,000]	FV	100,000
Coupon Amount [$100,000 x 9.00% x ½]	PMT	4,500
Market Interest Rate or Yield to maturity on the Bond [9.40% x ½]	1/Y	4.70
Maturity Period/Time to Maturity [4 Years x 2]	N	8
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond = $98,691.54.

“Hence, the Value of the bond today will be $98,691.54”

ekkarill92 answered 2 years ago

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