Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate is 5%, based on semiannual compounding. What is the bond's price?

Question

Business

Abby Collier

13 January, 18:33

Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate is 5%, based on semiannual compounding. What is the bond's price?

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Answers (1)

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Anabella Deleon · Answer 1

The price of the bonds is $ 1,276.

Explanation:

The value of bond or issue price can be calculated by discounting all future cash flow using effective rate of retun. Detail calculations are given below.

Future Value = Redemption present value (RPV) + Present value of interest (PVI)

RPV = 1,000 (1+5%) ^-15 = $ 481 - A

PVI = 36.25 * Annuity factor = $ 759 - B

Future Value = A + B = $ 1,276

Annuity factor = (1 - (1+i%) ^-n) / i% = (1 - (1+5%/2) ^-30) / (5%/2) = 20.9303