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1 January, 05:17

PGP Co. expects to issue a $1,000 face-value bond that matures in 8 years. The annual coupon rate is 9% and interest payments are expected to be paid annually. Similar bonds are currently priced at 101.4% of face value. Given this information, what is the required return by bond holders

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  1. 1 January, 08:32
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    Required return is 8.75%

    Explanation:

    Given,

    FV (Face Value) is $1,000

    PV (present Value) is computed as:

    PV = FV * Price

    = $1,000 * 101.4%

    = $1,014

    Nper (Number of years) is 8 years

    PMT (Monthly payment) is computed as:

    PMT = FV * Coupon rate

    = $1,000 * 9%

    = $90

    r (Required return) is computed by using the excel formula:

    =Rate (nper, pmt, pv, fv, type)

    = Rate (8,90,-1014,1000,0)

    = 8.75%
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Home » Business » PGP Co. expects to issue a $1,000 face-value bond that matures in 8 years. The annual coupon rate is 9% and interest payments are expected to be paid annually. Similar bonds are currently priced at 101.4% of face value.
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