Question

A 25 year bond issued today by Carris, Inc. has a coupon rate of 11%, a required return of 12% and a face value of $1000. The bond will be sold 8 years from now when interest rates will be 9%. What is the beginning value of the bond when it is issued (to the nearest dollar)

Answer 1

Answer:

bond's current market value = $921.56

Explanation:

the current market price of the bond is calculated by adding:

• present value of bond's face value = $1,000 / (1 + 12%)²⁵ = $58.82
• present value of coupon payments = $110 x 7.8431 (PV annuity factor, 12%, 25 periods) = $862.74

bond's current market value = $921.56