Respuesta :
Answer:
The price of the bond is $935.823
Explanation:
The Price of a bond is denoted by [tex]B_{0}[/tex]
The price of a bond is the present value of future interest stream and principal stream discounted at yield represented as kd.
[tex]B_{0} = \frac{Intererst}{(1 \ +\ Kd)^{1} } +\ \frac{Interest}{(1\ +\ Kd)^{2} } +.....+ \frac{Interest}{(1\ +\ Kd)^{n} } \ + \frac{Redemption\ value}{(1 \ + Kd)^{n}}[/tex]
[tex]B_{0} = \frac{80}{(1 \ +\ .09)^{1} } +\ \frac{80}{(1\ +\ .09)^{2} } +.....+ \frac{80}{(1\ +\ .09)^{10} } \ + \frac{1000}{(1 \ + .09)^{10}}[/tex]
[tex]B_{0}[/tex] = 6.41766 × 80 + 0.42241 × 1000 = 513.413 + 422.41 = $ 935.823
Whenever the coupon rate of payment is lesser than Kd or yield to maturity (ytm) , the price of such bonds are at a discount.
A bonds value is determined by the future stream of interest it generates in addition to it's redemption value both discounted at the investor's expected rate of return which is denoted by Kd.
