Question

Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 8.2% on these bonds. What is the bond's price? $903.04 $925.62 $948.76 $972.48 $996.79

Answer 1

Answer:

$903.04

Explanation:

Bond price= C*1-(1+r)^-n/r + F/(1+r)^n

=$65*1-

(1+0.082)^-8/0.082+$1000/(1+0.082)^8

=$65*1-(1.082)^-8/0.082+$1000/(1.082)^8

=$65*1-(0.5323)/0.082+$1000/1.8785

=$65*0.4677/0.082+$1000/1.8785

=$65*5.7037+$532.34

=$370.741+$532.34

=$903.081 approximately

To the nearest option

$903.04

Answer 2

Answer:

A. $903.4

Explanation:

The value of a bond determines whether it is a suitable investment for a portfolio.

The present value of expected cash flows is added to the present value of the face value of the bond as seen in the following formula:

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V coupons =∑ (1+r) t

CV face value= (1+r) T

F where:

C=future cash flows, that is, coupon payments

r=discount rate, that is, yield to maturity

F=face value of the bond

t=number of periods

T=time to maturity

For the explanation of Morin Company's bonds, find the attached sheet.