35 You are considering buying bonds in ACBB, Inc. The bonds have a par value of...
35
You are considering buying bonds in ACBB, Inc. The bonds have a par value of $1,000 and mature in 35 years. The annual coupon rate is 20.0% and the coupon payments are annual. If you believe that the appropriate discount rate for the bonds is 17.0%, what is the value of the bonds to you?
| $1,374.92 |
| $1,175.75 |
| $850.25 |
| $1,019.97 |
| $1,285.29 |
Homework Answers
Annual coupon=$1000*20%=$200
Value of bonds=Annual coupon*Present value of annuity factor(17%,35)+$1000*Present value of discounting factor(17%,35)
=$200*5.858195779+$1000*0.00410671759
which is equal to
=$1175.75(Approx).
NOTE:
1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$200[1-(1.17)^-35]/0.17
=$200*5.858195779
2.Present value of discounting factor=$1000/1.17^35
=$1000*0.00410671759
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