Given the following ATT Ltd.bond information: $1000 par value,maturity Dec 22,2023,semi-annual coupon 7.75 percent,price 105.50 and yield 7.4 percent.How much would a $1000 par value ATT Ltd.bond cost as of the day of this listing?

Question

Quizplus · Accepted Answer

We can use the bond pricing formula to find the cost:

Coupon payment = 1000 * 7.75% / 2 = $38.75

Number of semi-annual periods remaining = 2*(Dec 22, 2023 - Current date in semi-annual periods) = 2*(11-2) = 18

PV of coupon payments = 38.75 * [1 - 1/(1 + 7.4%/2)^18] / (7.4%/2) = $604.20

PV of par value = 1000 / (1 + 7.4%/2)^18 = $450.44

Total cost = PV of coupon payments + PV of par value = $604.20 + $450.44 = $1054.64

Rounded to the nearest whole number, the cost would be $1055. Therefore, the best choice is (D).

Given the Following ATT Ltd