Question

Regatta, Inc., has six-year bonds outstanding that pay an 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. How much will you be willing to pay for Regatta's bond today? Assume annual coupon payments. (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Answer 1

Answer:

$1,065.76

Explanation:

Years to maturity = 6

Coupon rate = C=8.25%

Annual coupon = $1,000 * 0.0825 = $82.50

Current market rate = i = 6.875%

Present value of bond = 82.5 * PVIFA(6.875%,6) + 1,000 * PVIF(6.875%,6)

Present value of bond= 82.5 * 4.7850 + 1,000 * 0.6710

Present value of bond= 394.7625 + 671

Present value of bond= 1065.7625  

Present value of bond= $1,065.76