Southern Communications will issue 30-year,semiannual bonds with an 8.0% coupon rate and a $1,000 par value.Bonds of similar risk and maturity are currently selling to yield 7.0% in the market place.What is the market price of one of the firm's new bonds? Use a financial calculator to determine your answer.

Question

Quizplus · Accepted Answer

The market price of the bond is $1,124.72. This is calculated using the following formula:Bond Price = (C * (1 - (1 + r)^-n)) / r + (FV / (1 + r)^n)Where:C = coupon paymentr = yield to maturityn = number of periodsFV = face valueIn this case, the coupon payment is $40 (8% of $1,000), the yield to maturity is 7%, the number of periods is 60 (30 years * 2 semiannual periods per year), and the face value is $1,000. Plugging these values into the formula, we get:Bond Price = (40 * (1 - (1 + 0.07)^-60)) / 0.07 + (1000 / (1 + 0.07)^60)= $1,124.72

Southern Communications Will Issue 30-Year,semiannual Bonds with an 8