rosado2289 rosado2289

30-06-2024
Business

Answered

Calculate the value of a bond that matures in 16 years and has a $ 1000 par value. The annual coupon interest rate is 15 percent and the market's required yield to maturity on a comparable-risk bond is 13 percent.

Answer :

sqdancefan sqdancefan

30-06-2024

Answer:

$1132.08

Explanation:

You want the value of a 16-year $1000 bond with a coupon rate of 15% if its expected yield is 13%.

Present value

Each coupon is worth $1000×0.15 = $150. The present value of the 16-year series of coupons is ...

[tex]150\times\dfrac{1-1.13^{-16}}{1.13-1}\approx990.58[/tex]

The present value of the mature bond is ...

[tex]1000\times1.13^{-16}\approx141.50[/tex]

The value of the bond is the sum of these present values:

990.58 +141.50 = 1132.08

The bond has a current value of $1132.08.

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