Use the information for the question (s) below. The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then the price that this bond trades for will be closest to:

Question

Gummi Bear

Business

5 October, 01:24

Use the information for the question (s) below. The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then the price that this bond trades for will be closest to:

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Answers (1)

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Claire Lawrence · Answer 1

The price of the bond will be closest $1,0445

Explanation:

Face value $1000, years to maturity 15 years, coupon rate 8% paid semi annually, YTM 80%

Semiannual

n = 15*2 = 30

coupon payments = 8%*1000/2 = $40

YTM = 7.5%/2 = 3.75%

Value of a bond is equal the present value of coupon payments and present value of face value at maturity

Bond Price = C * [1 - (1+r) ^-n/r] + FV / (1+r) ^n

= 40 * [1 - (1+0.375) ^-30/0.0375] + 1000 / (1+0.0375) ^30

=713.1698 + 331.4033

= $1,044.57

Therefore when rounding of the price of this bond is closest to $1,0445