Blue water designs is preparing a bond offering with a 7% coupon rate and a face

Question

Blue water designs is preparing a bond offering with a 7% coupon rate and a face value of $1000. The bonds will be repaid in 5 years. The company plans to issue the bonds at par value me pay interest semi annually. Given a discount rate of 6%, what should the price of this bond be? Please give a simple solution with steps, thanks! Blue water designs is preparing a bond offering with a 7% coupon rate and a face value of $1000. The bonds will be repaid in 5 years. The company plans to issue the bonds at par value me pay interest semi annually. Given a discount rate of 6%, what should the price of this bond be? Please give a simple solution with steps, thanks!

Explanation / Answer

Bond Value = C/2 {[1-(1+(YTM/2))-2t/(YTM/2)] + [F / (1+ (YTM/2))2t]

B0 = ?
C = $1,000 x 7% = $70
F = $1,000
YTM = 6% (Discount Rate)
t = 5

Price of bond = $70/2 {[1-(1+(YTM/2))-10/(YTM/2)] + [$1,000 / (1+ (YTM/2))10] = $1,074

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.