Question

A firm issues two-year bonds with a coupon rate of 6.3%, paid semiannually. The credit spread for this firm's two-year debt is 0.8%. New two-year Treasury notes are being issued at par with a coupon rate of 4.0%. What should the price of the firm's outstanding two-year bonds be per $100 of face value?

A) $102.83
B) $143.96
C) $123.39
D) $82.26

Answer 1

Answer:

A) $102.83

Explanation:

C/Y = P/Y  

      = 2

N = 4

I/Y = 4.8

PMT = 100*6.3%/2

        = 3.15

FV = -100

PV = 102.83

Therefore, The price of the firm's outstanding two-year bonds be per $100 of face value is $102.83