Zoro Sword Company bonds pay an annual coupon rate of 9 1/2%.They have eight years to maturity and face value,or par,of $1,000.Compute the value of Zoro bonds if investors' required rate of return is 10%.

Question

Quizplus · Accepted Answer

To calculate the value of the bond, we need to find the present value of all future cash flows. The annual coupon payment is $95 ($1,000 × 9.5%).

Using the formula:

PV = C / (1 + r)^t + F / (1 + r)^t

Where:
PV = present value of the bond 
C = annual coupon payment 
r = required rate of return 
t = time period in years 
F = face value of the bond

We can plug in the values: 
PV = $95 / (1 + 0.1)^1 + $95 / (1 + 0.1)^2 + ... + $95 / (1 + 0.1)^8 + $1,000 / (1 + 0.1)^8

Solving this equation gives us a present value of $973.33, which is closest to answer choice B.

Zoro Sword Company Bonds Pay an Annual Coupon Rate of 9