Question

Assume that a 12-year semi-annual, 8% bond is callable after 5 years at 105% of par...

Assume that a 12-year semi-annual, 8% bond is callable after 5 years at 105% of par value and the discount rate in today’s market is 5%. Using the price-to-worst method, what is the value of this bond?

$1,000

$1,149

$1,170

$1,268

$1,010

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Value of Bond = PV of CFs from it.

Period CF PVF @2.5% Disc CF
1 $      40.00     0.9756 $      39.02
2 $      40.00     0.9518 $      38.07
3 $      40.00     0.9286 $      37.14
4 $      40.00     0.9060 $      36.24
5 $      40.00     0.8839 $      35.35
6 $      40.00     0.8623 $      34.49
7 $      40.00     0.8413 $      33.65
8 $      40.00     0.8207 $      32.83
9 $      40.00     0.8007 $      32.03
10 $      40.00     0.7812 $      31.25
10 $ 1,050.00     0.7812 $    820.26
Value of Bond $ 1,170.34

OPtion C is correct.

Add a comment
Know the answer?
Add Answer to:
Assume that a 12-year semi-annual, 8% bond is callable after 5 years at 105% of par...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT