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27 October, 04:47

Kessen Inc.'s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70. The market interest rate for the bonds is 8.5%. What is the bond's price?

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  1. 27 October, 06:36
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    The market value of debt is the present value of all future cash flows in servicing the debt.

    we need to identify the present value of the future cash flows as follows

    Year no of receipts Cash flow Discount factor present value

    1-7 7 70 5.1185 358.296

    7 1 1000 0.5649 564.926

    Present Value 923.222

    Annuity = P=R (1 + (1+i) ^-n) / i

    Annuity = P=70 (1 + (1+8.5%) ^-7/8.5% = 5.1185

    Compound = S=P (1+i)

    Compound = P=1000 / (1+8.5%) ^7 = 0.5649

    the value of the bond is = 923.222
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Home » Business » Kessen Inc.'s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70. The market interest rate for the bonds is 8.5%. What is the bond's price?
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