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Doisneau 15​-year bonds have an annual coupon interest of 12 ​percent, make interest payments on a...

Doisneau 15​-year bonds have an annual coupon interest of 12 ​percent, make interest payments on a semiannual​ basis, and have a ​$1000 par value. If the bonds are trading with a​ market's required yield to maturity of 13 ​percent, are these premium or discount​ bonds? Explain your answer. What is the price of the​ bonds? (round to the nearest cent)

Solutions

Expert Solution

Period Cash Flow Discounting Factor
[1/(1.065^year)]		 PV of Cash Flows
(cash flows*discounting factor)
1 60 0.938967136 56.33802817
2 60 0.881659283 52.89955697
3 60 0.827849092 49.67094551
4 60 0.777323091 46.63938545
5 60 0.729880837 43.79285019
6 60 0.685334119 41.12004713
7 60 0.643506215 38.61037289
8 60 0.604231188 36.25387126
9 60 0.567353228 34.04119367
10 60 0.532726036 31.96356213
11 60 0.50021224 30.0127344
12 60 0.469682854 28.18097126
13 60 0.441016765 26.46100588
14 60 0.414100249 24.84601491
15 60 0.388826524 23.32959147
16 60 0.365095328 21.90571969
17 60 0.342812515 20.56875088
18 60 0.321889685 19.31338111
19 60 0.302243836 18.13463015
20 60 0.283797029 17.02782174
21 60 0.266476083 15.98856501
22 60 0.250212285 15.0127371
23 60 0.234941113 14.09646676
24 60 0.220601984 13.23611902
25 60 0.207138013 12.42828077
26 60 0.194495787 11.6697472
27 60 0.182625152 10.95750911
28 60 0.171479016 10.28874095
29 60 0.16101316 9.660789624
30 60 0.151186066 9.071163967
30 1000 0.151186066 151.1860661
Price of the Bond =
Sum of PVs		 934.7066205

Price of Bond = $934.71

As the Price is LOWER THAN PAR VALUE, it is a Discount Bond. Also, the Coupon Rate is LOWER THAN YIELD RATE, therefore, it will trade at Discount.

jeff jeffy answered 1 year ago
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