Calculate the value of a $1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent. The required return on similar-risk bonds is 20 percent.

Question

Quizplus · Accepted Answer

The bond's value is calculated using the present value of its future cash flows, which include quarterly coupon payments and the face value at maturity. With a 12% annual coupon rate, the quarterly payment is $30. The required return is 5% per quarter. Using the present value formula for an annuity and a lump sum, the bond's value is approximately $657.

Calculate the Value of a $1,000 Bond Which Has 10