Hurricane Corp. recently purchased corporate bonds in the secondary market with a par value of $11 million, a coupon rate of 12 percent (with annual coupon payments), and four years until maturity. If Hurricane intends to sell the bonds in two years and expects investors' required rate of return on similar investments to be 14 percent at that time, what is the expected market value of the bonds in two years?

Question

Quizplus · Accepted Answer

The expected market value of the bonds in two years is $10.64 million. This is because the bonds have a par value of $11 million, a coupon rate of 12 percent, and four years until maturity. If Hurricane intends to sell the bonds in two years and expects investors' required rate of return on similar investments to be 14 percent at that time, then the bonds will be worth $10.64 million in two years.