a. Answer: $1070.24
Selling price of bond = [($1000 x 8%) x PVA(i=7%, n=10)] + [$1000 x PV(i=7%, n=10)]
Selling price of bond = ($80 x 7.02358) + ($1000 x 0.50835) = $561.8864 + $508.35 = $1070.2364 = $1070.24
b. Answer: A. Since Complex Systems' bonds were issued, there may have been a change in the supply-demand relationship for money or a shift in the investors' attitudes towards the firm.
c. Answer: $1000
Selling price of bond = [($1000 x 8%) x PVA(i=8%, n=10)] + [$1000 x PV(i=8%, n=10)]
Selling price of bond = ($80 x 6.71008) + ($1000 x 0.46319) = $536.8064 + $463.19 = $999.9964 = $1000
When the required return is equal to the coupon rate, the bond value is equal to the par value. In contrast in part a above, if the required return is less than the coupon rate, the bond will sell at a premium (its value will be greater than par).
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