Ask Question
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?

+5
Answers (1)
  1. 27 October, 06:36
    0
    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
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “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 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers