Question
Please provide clear financial calculator inputs and a clear answer to both parts. Thank you You are reviewing a $1,000 par value bond that pays
Please provide clear financial calculator inputs and a clear answer to both parts. Thank you
You are reviewing a $1,000 par value bond that pays 8.3% semi-annual coupon interest, it has 15 years before it matures.
Part a. You currently require a nominal annual rate of 7.3 percent for this bond. Which means, the comparable bonds have a YTM of 7.3%. How much should you be willing to pay for this bond today?
Part b. If you buy this bond today and hold it for 6 years with the intent to sell it on the secondary market. Assume you expect the market to require a nominal rate of 6.3 percent when you sell the bond (in 6 years) due to a general decline in interest rates. This is because the company performed well during the 6 year period and its riskiness for debt has reduced.
How much should you be willing to charge for this bond 6 years from today? Assume there is no transaction cost.
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