Question

BOND VALUATION Asiana Fashion's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8% and thebyield to maturity is 9%.What is the bond's current market price?​

Answer 1

Answer:

$935.76

Step-by-step explanation:

BOND VALUATION Asiana Fashion's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8% and thebyield to maturity is 9%.What is the bond's current market price?​

Step 1

We find the Present value factor of sum

The formula =

(1 + i)^n

Where

i = maturity rate = 9% = 0.09

n = number of years = 10 years

Present Value = ( 1 + 0.09)^-10

= 0.4224

Step 2

We find the present value factor of annuity

The formula is given as:

1 - (1+i)^-n / i

i = maturity rate = 9% = 0.09

n = number of years = 10 years

= 1 - (1 + 0.09)^-10 /0.09

= 1 - 0.4224 /0.09

= 0.5775 /0.09

= 6.417

Step 3

The bond's current market price is calculated as:

= PV factor of Sum × Par Value + PV factor of annuity × coupon payment

Coupon payment is calculated as:

= Coupon interest × par value

= 8% × 1000

= 80

Hence,

= 0.4224 × 1,000 + 6.417 × 80

= 422.4 + 513.36

= 935.76

Answer 2

In this exercise we have to use the knowledge of finance to calculate the corrective value of the market place, in this way we find that:

$\ 935.76$

We find the Present value factor of sum, by the formula of:

$(1 + i)^n$

Where:

• i = maturity rate = 9% = 0.09

• n = number of years = 10 years

Substituting the values ​​in the formula as;

$Present \ Value = ( 1 + 0.09)^{-10} = 0.4224$

We find the present value factor of annuity, by the formula as:

$1 - (1+i)^{-n} / i$

Where:

• i = maturity rate = 9% = 0.09

• n = number of years = 10 years

Substituting the values ​​in the formula as;

$= 1 - (1 + 0.09)^{-10} /0.09\\= 1 - 0.4224 /0.09\\= 0.5775 /0.09\\= 6.417$

The bond's current market price is calculated as:

$= PV \ factor\ of\ Sum * Par\ Value + PV\ factor\ of\ annuity * coupon\ payment$

Coupon payment is calculated as:

$= Coupon\ interest * par\ value\\= 8\% * 1000= 80$

So continue the calcule;

$= 0.4224 *1,000 + 6.417 * 80\\= 422.4 + 513.36\\= 935.76$

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