A $1,000 face value bond issued by the Dysane Company currently pays total annual interest of $79

Question:

A $1,000 face value bond issued by the Dysane Company currently pays total annual interest of $79 per year and has a 13-year life.

a. What is the present value, or worth, of this bond if investors are currently willing to accept a 10 percent annual rate of return on bonds of similar quality if the bond is a Eurobond?

b. How would your answer in Part a change if the bond is a U.S. bond?

c. How would your answer in Part b change if, one year from now, investors only required a 6.5 percent annual rate of return on bond investments similar in quality to the Dysane bond?

d. Suppose the original bond can be purchased for $925. What is the bond’s yield to maturity?

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...