Some Co is planning to issue a 15year 1000 facevalue bond th

Some Co. is planning to issue a 15-year, $1.000 face-value bond that pays quarterly interest payments on an 8% annual coupon rate. The return required by bond holders is 7.2% What is the price of the bond?

Solution

Par value of Bonds 1000 Annual interest rate 8% Quarterly interest rate 2% Periods (15*4) 60 Quarterly interest payment 20 (1000*2%) Market rate Quarterly (7.2/4) 1.80% Annuity factor f or 60 periods at 1.80% 36.5071 Preent value factor at 60th periods 0.3429 Present value of interest 730.142 Present value of Maturity 342.9 Issue price 1073.042