In: Finance
Borland, Inc. issues 25-year semi-annual bonds that have a face value of $1,000 and a coupon rate of 7.5%. The current market price for the bonds is $950.00. If your required rate of return is 8.5%, what is the value of one of these bonds to you?(Your answer should be with +/- $0.02 of the following answers.)
$977.95
$978.09
$897.03
$950
Price of Bond is nothing but PV of Cash flows from it.
Particulars | Amount |
Coupon Amount | $ 37.50 |
Maturity Value | $ 1,000.00 |
Disc Rate | 4.250% |
Starting | 1 |
Ending on | 50 |
Coupon Amount = 1000 * 7.5 % *6/12 = 37.5
Discount rate = 8.5% *6/12 = 4.25%
period | Cash Flow | PVF/ PVAF @4.25 % | Disc CF |
1 - 50 | $ 37.50 | 20.5931 | $ 772.24 |
50 | $ 1,000.00 | 0.1248 | $ 124.79 |
Bond Price | $ 897.03 | ||
PVAF = Sum [ PVF(r%, n) ] | |||
PVF = 1 / ( 1 + r)^n | |||
Where r is int rate per Period | |||
Where n is No. of Periods |
3rd Option has to be selected