Question

In: Finance

29) Within Year, Inc. has bonds outstanding with a $1,000 par value and a maturity of...

29) Within Year, Inc. has bonds outstanding with a $1,000 par value and a maturity of 30 years. The bonds have an annual coupon rate of 8.0% with quarterly coupon payments. You would expect a quoted annual return of 17.0% if you purchased these bonds. What are the bonds worth to you?

$494.04

$474.17

$2,020.50

$622.47

$1,876.38

Expert Solution

$474.17

Working:

Price of bond is the present value of cash flows from bond.

Present Value of coupon interest

$ 467.40

Present value of Par Value

$ 6.77

Present Value of cash flows

$ 474.17

So, price of bond is

$ 474.17

Working:

# 1

Semi annnual coupon interest

=

Face Value * Semi annual coupon rate

=

1000*2%

=

$ 20.00

# 2

Present value of annuity of 1

=

(1-(1+i)^-n)/i

Where,

=

(1-(1+0.0425)^-120)/0.0425

i

17%/4

=

0.0425

=

23.370014

n

30*4

=

120

# 3

Present value of 1

=

(1+i)^-n

=

(1+0.0425)^-120

=

0.0067744

# 4

Present Value of coupon

=

Coupon Interest

*

Present Value of annuity of 1

=

$ 20.00

*

23.37001

=

$ 467.40

# 5

Present value of face value

=

Face Value

*

Present value of 1

=

$ 1,000.00

*

0.006774

=

$ 6.77

jeff jeffy answered 2 years ago

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