Moerdyk Corporation's bonds have a 10-year maturity,a 6.25% semiannual coupon,and a par value of $1,000.The going interest rate (r_d) is 4.75%,based on semiannual compounding.What is the bond's price?

Question

Quizplus · Accepted Answer

To calculate the bond's price, we need to use the bond pricing formula:

Bond price = (Coupon payment / Discount rate) x (1 - 1 / (1 + Discount rate)^Number of periods) + Par value / (1 + Discount rate)^Number of periods

Where:
Coupon payment = $1,000 x 6.25% / 2 = $31.25 (since the coupon is paid semiannually)
Discount rate = 4.75% / 2 = 2.375% (since the rate is also semiannual)
Number of periods = 10 years x 2 = 20 (since there are two semiannual periods in a year)

Plugging in the values:

Bond price = ($31.25 / 2.375%) x (1 - 1 / (1 + 2.375%)^20) + $1,000 / (1 + 2.375%)^20
Bond price = $1,118.31

Therefore, the correct answer is C.

Moerdyk Corporation's Bonds Have a 10-Year Maturity,a 6