Flyover Airlines Inc.issued 20-year,8% per annum semi-annual coupon bonds at their face value of $1,000.Immediately after issue a major disaster befell the airline and the yield to maturity on their bonds rose to 15%.per annum.What is the new price of the firm's bonds?
A)$559.20
B)$613.22
C)$1,000
D)$1324.18

Question

Quizplus · Accepted Answer

The bond's price can be calculated using the present value of its future cash flows, which are the semi-annual coupon payments and the face value at maturity. With a yield to maturity of 15% per annum (or 7.5% per semi-annual period), the bond's price is calculated to be approximately $559.20.