Question

Jallouk Corporation has a bond outstanding with a face value of $30,000. The bond matures in 20 years. The bond makes no coupon payments for the first six years, then pays $1,900 every six months over the subsequent eight years. Finally, the bond pays $2,200 every six months over the last six years. The face value (original principal on the loan) is also repaid at maturity. The annual required return on the bond is 12 percent with semi-annual compoundingg What is the price of this bond? Note: The point of this problem is that a bond's price is the present value of the cash flows, so don't try to simply memorize an equation for bond prices. Rather value the bond's cash flows. Here, the cash flows are are two separate annuities (coupons), and a par payment. The PV equations for an annuity, however, assumes the first cash flow is received at the end of the period. Don't forget to adjust these annuities' present values to account for the fact they don't begin at the end of the period, but rather in 6.5 years and 14.5 years, respectively. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Bond's Price $2,916.60

Answer 1