Question

The bonds have a 8.3% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?

Answer 1

Answer:

$838.67

Explanation:

Using a financial calculator, input the following and adjust variables to semi-annual basis;

Time to maturity ; N = 10* 2 = 20

Interest rate(semiannual) ; I/Y = 11%/2 = 5.5%

Face Value ; FV = $1,000

Coupon payment ; PMT = (8.3%/2) *1000 = $41.5

Then compute the price of the bond which is also its current market value; CPT PV = $838.67

Therefore, the current market value of the firm's debt is $838.67