ABC Corporation outstanding bonds have a par value of $1000, 8% coupon and 15 years to maturity and a 10% YTM. What is the bond's price?

Answers

Answer 1

The approximate price of the bond is $1,138.54. This represents the present value of all the future cash flows, discounted at the bond's yield to maturity of 10%.

To calculate the price of a bond, we need to use the present value formula, which takes into account the bond's future cash flows and the yield to maturity (YTM). In this case, we have the following information:

Par value (face value) of the bond = $1000

Coupon rate = 8%

Years to maturity = 15

Yield to maturity (YTM) = 10%

The coupon payment is 8% of the par value, which is $1000 x 8% = $80 per year. The coupon payments occur annually.

To calculate the price of the bond, we can use the present value of the bond's cash flows, which are the coupon payments and the final repayment of the par value at maturity. The formula for calculating the present value of a bond is:

Price = (Coupon Payment / (1 + YTM)^1) + (Coupon Payment / (1 + YTM)^2) + ... + (Coupon Payment / (1 + YTM)^n) + (Par Value / (1 + YTM)^n)

Using this formula, we can calculate the price of the bond:

Price = ($80 / (1 + 10%)^1) + ($80 / (1 + 10%)^2) + ... + ($80 / (1 + 10%)^15) + ($1000 / (1 + 10%)^15)

To simplify the calculation, we can use financial calculators or spreadsheet software. Plugging the values into a financial calculator or spreadsheet, the bond's price is approximately $1,138.54.

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Related Questions

A court of appeal will hear new testimony to prevent justice?
True or False

Answers

The statement is False. In a court of appeal, new testimony is generally not heard.

The purpose court of appeal is to review the legal proceedings and the application of the law in the previous trial, rather than reevaluating the facts or introducing new evidence.

The appellate court's role is to assess whether there were any errors of law or procedural irregularities that may have affected the outcome of the trial.

Typically, new evidence or testimony is not allowed in the appellate court unless there are exceptional circumstances, such as newly discovered evidence that could not have been reasonably presented during the original trial.

However, even in such cases, the standards for introducing new evidence in an appeal are stringent, and it is rare for new evidence to be considered.

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