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In: Finance

Happy Hour Inc. has $1,000 par value bonds with 6% coupon rate and 6 years to...

Happy Hour Inc. has $1,000 par value bonds with 6% coupon rate and 6 years to maturity. If your required rate of return is 8%, what should be the price of the bond if the bonds pay interest semi-annually?

Select one:

a. $849.28

b. $1,187.70

c. $1,099.54

d. $906.15

e. $907.54

Solutions

Expert Solution

Frequency in a year                  2
YTM 8.00%
Coupon rate 6.00%
Face value $       1,000
Coupon payment $            30 =1000*6%/2
Years to maturity                  6
No. of periods                12
4.00%
Year Cash Flow PV factor = 1/ (1+r)^t PV
0 $                            -   1.000 $            -  
1 $                      30.00 0.962 $       28.85
2 $                      30.00 0.925 $       27.74
3 $                      30.00 0.889 $       26.67
4 $                      30.00 0.855 $       25.64
5 $                      30.00 0.822 $       24.66
6 $                      30.00 0.790 $       23.71
7 $                      30.00 0.760 $       22.80
8 $                      30.00 0.731 $       21.92
9 $                      30.00 0.703 $       21.08
10 $                      30.00 0.676 $       20.27
11 $                      30.00 0.650 $       19.49
12 $                      30.00 0.625 $       18.74
12 $                 1,000.00 0.625 $     624.60
Total $     906.15
So the price of bond will be $ 906.15

jeff jeffy answered 1 year ago
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