The Cougar Corporation has issued 20-year semiannual coupon bonds with a face value of $1,000.If the annual coupon rate is 10% and the current yield to maturity is 12%,what is the firm's current price per bond?

Question

Quizplus · Accepted Answer

First, calculate the semiannual coupon payment:
(10% / 2) x $1,000 = $50

Next, calculate the total number of semiannual coupon periods over 20 years:
20 years x 2 = 40 semiannual coupon periods

Then, calculate the present value of the semiannual coupon payments using the yield to maturity of 12%:
PV of annuity = $50 x [(1 - (1 / (1 + 0.06)^40)) / 0.06] = $596.76

Finally, calculate the present value of the face value (or principal) of the bond:
PV of face value = $1,000 / (1 + 0.12)^40 = $107.78

The current price of the bond is the sum of the present value of the semiannual coupon payments and the present value of the face value:
Current price = $596.76 + $107.78 = $704.54

Therefore, the correct answer is B.

The Cougar Corporation Has Issued 20-Year Semiannual Coupon Bonds with a Face