Ask Question
31 October, 07:09

ABC Company issued a bond with face value for $1000, paid annual 10% coupon and 3 years to maturity, what is the value of ABC bonds today if the required rate of return is 12%.

+2
Answers (1)
  1. 31 October, 11:06
    0
    The value of Bond = $951.963

    Explanation:

    The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV) discounted at the yield rate

    Value of Bond = PV of interest + PV of RV

    Th e PV of interest payment

    A * (1 - (1+r) ^ (-n)) / r

    Interest payment = 10% * 1000 = 100

    PV = 100 * (1 - 1.12^ (-3)) / 0.1 = 240.183126

    PV of redemption value

    PV = RV * (1+r) ^ (-n)

    PV = 1000 * 1.12^ (-3) = 711.7802

    The value of bond = 240.18 + 711.78 = 951.963

    The value of Bond = $951.963
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “ABC Company issued a bond with face value for $1000, paid annual 10% coupon and 3 years to maturity, what is the value of ABC bonds today ...” 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