Haswell Enterprises' 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? A) 1,063.09 B) 1,090.35 C) 1,118.31 D) 1,146.27 E) 1,174.93

Question

Quizplus · Accepted Answer

The bond's price can be calculated using the formula for the present value of an annuity (for the coupon payments) plus the present value of a lump sum (for the bond's par value at maturity). Given a semiannual coupon rate of 6.25% on a $1,000 par value, the semiannual coupon payment is $31.25 ($1,000 * 6.25% / 2). With a market interest rate of 4.75% semiannually, the bond's price is the present value of these cash flows. Using the present value formulas, the correct price is $1,118.31, which matches option C.

Haswell Enterprises' Bonds Have a 10-Year Maturity, a 6