20. The bonds of Micromachines have an 8% annual coupon, face value of $1000 and mature in four years. Bonds of equivalent risk yield 12%. The company is having cash flow problems and has asked its bondholders to accept the following deal: The firm would like to make the next 2 coupon payments at half the scheduled amount, and make up for this by

adding will be

A. B. C. D.

Answer: D

$80 to the final coupon payment. If the company goes ahead with this plan what the new price of the bond? Choose the answer that is closest to correct.

$686 $878 $858 $861