Borland, Inc. issues 25-year semi-annual bonds that have a facevalue of $1,000 and a coupon...

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

Solutions

Expert Solution

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

jeff jeffy answered 2 years ago

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