Terminator Bug Company bonds have a 14% coupon rate.Interest is paid semi-annually.The bonds have a par value of $1000 and will mature 10 years from now.Calculate the value of Terminator bonds if investors' required rate of return is 12%.

Question

Quizplus · Accepted Answer

The value of the Terminator bonds can be calculated using the formula for the present value of a bond, which includes the present value of the annuity (coupon payments) and the present value of the par value (lump sum at maturity). The coupon payment is $1000 * 14% / 2 = $70 per period (since interest is paid semi-annually), there are 20 periods (10 years * 2), and the investors' required rate of return is 12% / 2 = 6% per period. Using the present value formulas, the bond's value is calculated as the sum of the present value of the annuity (coupon payments) and the present value of the par value, resulting in approximately $1114.70.

Terminator Bug Company Bonds Have a 14% Coupon Rate