(Bond valuation) Bellingham bonds have an annual coupon rate of 15 percent and a par value...
(Bond valuation)
Bellingham bonds have an annual coupon rate of 15 percent and a par value of $1,000 and will mature in 5 years. If you require a return of 8
percent, what price would you be willing to pay for the bond? What happens if you pay more for the bond? What happens if you pay less for the bond?
The price you would be willing to pay for the bond is $ . (Round to the nearest cent.)
Homework Answers
Face Value = $1,000
Annual Coupon Rate = 15%
Annual Coupon = 15% * $1,000
Annual Coupon = $150
Time to Maturity = 5 years
Annual Interest Rate = 8%
Price of Bond = $150 * PVIFA(8%, 5) + $1,000 * PVIF(8%, 5)
Price of Bond = $150 * (1 - (1/1.08)^5) / 0.08 + $1,000 /
1.08^5
Price of Bond = $1,279.49
You should pay $1,279.49 for this bond.
If you pay more for the bond, than the financial benefit will be
less than the par value.
If you pay less for the bond, than the financial benefit will be
more than the par value.
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