Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Sy

Question

Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,130. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 13 percent interest, and it has 18 years remaining until maturity. The current yield to maturity on similar bonds is 11 percent.

Calculate the present value of the bond?

Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,130. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 13 percent interest, and it has 18 years remaining until maturity. The current yield to maturity on similar bonds is 11 percent.

Calculate the present value of the bond?

Explanation / Answer

Face value 1000

Matutity 18

Coupon 130

YTM 11%

PV of bond 1154.03.

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