Question
The issue has 10 years to maturity and a coupon rate of 10 percent, paid annually.The new agreement allows the firm to pay no interest
The issue has 10 years to maturity and a coupon rate of 10 percent, paid annually.The new agreement allows the firm to pay no interest for 5 years.Then interest payments will be resumed for the next 5 years (first coupon is in year 6).Finally at maturity (Year 10), the principal plus the interest that was not paid during the first 5 years will be paid. However, no interest will be paid on the deferred interest. If the required return is 20%, what should the bonds sell for in the market today?
Show compute in excel with steps.
$335.88
$398.27
$362.44
$327.93
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