Question

Question 5

A company has just issued a 5 year 5.5% coupon bond. The face value of the bond is $1,000 and the bond makes annual coupon payments. If the required return on the bond is 15.0%, what is the bond’s price? (to the nearest cent)

Select one:

a. $681.55

b. $673.96

c. $1405.68

d. $497.18

Answer 1

Solution :-

Face value of bond = $1,000

Coupon rate of bond = 5.5%

Annual Coupon Amount = $1,000*5.5% = $55

Life of bond = 5 Years

So Price of bond =

= $55 * PVAF(15% , 5) + $1,000 * PVF(15%, 5)

= ($55 * 3.352 ) + ($1,000 * 0.497)

= $681.55

Therefore the correct answer is (A)

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