DarkHawk Co issued 1000 face bonds with a 6 annual coupon in

DarkHawk Co. issued $1000 face bonds with a 6% annual coupon in 2010. The bonds mature in 2030. Exactly 5 years later a company financially similar to DarkHawk, is preparing to issue 20 year $1000 face bonds with a 7% annual coupon. What will be DarkHawk bonds price in year 2015? A. $908.92 B. $591.95 C. $465.50 D. $292.98 E. $853.13

Solution

Answer: Option A = $908.92

Calculations:

It will be the PV of the expected cash flows through 2015 to 2030, discounted at 7%.

= 1000/1.07^15 + 60*[1.07^15 - 1]/(.07*1.07^15 = 362.45 + 60*9.1079 = 362.45 + 546.47 = 908.92