. With celebrity bonds, celebrities raise money by issuing bonds to investors. T
ID: 2710422 • Letter: #
Question
. With celebrity bonds, celebrities raise money by issuing bonds to investors. The royaties from teh sales of music are used to pay interest and pricipal on the bonds. In April of 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 6.9% and will mature on this day 37 years from now. The yield on the bond issue is currently 6.1%. At what price should this bond trade today, assuming a face value of $1,000 and annual coupons? The price of the bond today should be $________. (Round to the nearest cent)
Explanation / Answer
Clearly, the bond is trading at a premium to its Face value since its Yield is lower than the coupon.
Pesent value (PV) of the bond can be found using a Finacial Calculator with following entries -
N = 37; I/Y or Yield = 6.1; PMT or Coupon = 69; Future Value or FV = 1000, CPT or Compute PV.
PV = 1116.48
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