ABC Corporation's bonds have a 15-year maturity, a 7.50% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 7%, based on semiannual compounding. What is the bond's price? 1. $821.28 2. $899.50 3. $1,045.98 4. $1,202.59 5. $1,022.99
Coupon Bond Valuation:
A coupon bond pays periodic interest payments plus the principal at maturity. The price of the bond is the present value of the bond, discounted at current yield to maturity. The bond's price negatively correlates with its yield to maturity.
Answer and Explanation:
The answer is 3.
Semi-annual coupon payment = 1000*7.5%/2 = $37.5 With 15 years to maturity, there are 15*2 = 30 coupon payments. The effective...
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from Finance 301: Corporate FinanceChapter 7 / Lesson 6