Moving to another question will save this response Question

Moving to another question will save this response. Question 1 of4 Question 1 10 points Save Answer Noncalable bonds that mature in 10 years were recently issued by Sternglass he. They have a par value of $1,000 and an annui copon of 55%. Ifthe arret at what price should the bonds selil? Words 0 Path: p Question 1 of 4 ? Moving to another question will save this response. 8

Solution

Price of Bond = Cupon Amount * Present Value of Annuity Factor (r,n) + Redemption Amount * Present Value of Interest Factor (r,n)

Where Cupon Amount = $1000 * 5.5%

= $55

Redemption Amount = $1000

r = rate of interest or 8%

n = remaining maturity or 10 years

Present Value of Annuity Factor (8% ,10) = 6.7101

Present Value of Interest Factor (8% ,10) = 0.4632

Therefore

Bond Price = $55 * 6.7101 + $1000 * 0.4632

Bond Price = $369.0555 + $463.2

Bond Price = $832.2555

Therefore the bond should sell at $832.2555