Campny s is suing colleleal bands lhot tue a pace volue s of 5o,oooTL and a coup

Question

Campny s is suing colleleal bands lhot tue a pace volue s of 5o,oooTL and a coupon rate o 6% per Year, parable quarter! (every 3 months),The bod matusily dale is to ears on he dorthe dte her wee is)Riht no yoare in the auclon thet this bond is belng offered Jo the public. tour interest tote in the norketplode is now 20% pei3ear, being orfeed Jo the public. lour i cmpanded quor terly. Some body in the auclan hasffered 29,000 TL and the auctioneer is asking you if Ja. will offer lear!' uhet wald be yous onsver?

Explanation / Answer

The present value of a bond having face value of 50000 ; coupon of 6% and market yield of 20% for 10 years paid quarterly then valuation can be done as follows

750((1/1.05)+(1/1.05)^2+(1{1.05)^3+...+(1/1.05)^40))+50000(1/1.05)^40=12847.39+7102.28= 19949.67 TL

As offered value for a bond is higher than true value of a bond you should not offer a bid more than true value of a bond

Hence say no to auctioneer

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