Selling Price- Finance

label Business & Finance
account_circle Unassigned
schedule 1 Day
account_balance_wallet $5

A $1,000 corporate bond with 20 years to maturity pays a coupon of 7% (semi-annual) and the market required rate of return is a) 6.6% b) 13%. What is the current selling price for a) and b)?

Feb 23rd, 2015

Face value of bond = $1,000 = F

Coupon rate = 7% (semi annual) = C

Market Rate of Return = A) 6.6% B) 13% = r

Years of Maturity = 20 = t

Bond selling price = B0


Using this equation and plugging in the numbers above respectively, you get:

A) Bond selling price with a rate of return at 6.6% = $1,044.07 *with the coupon rate being higher than the market rate of return you are able to incur some interest on that value. Thus be selling at a premium

B) Bond selling price with a rate of return at 13% = $575.63 *with the coupon rate being less (almost 1/2)  than the market rate of return, thus having a bond value worth half of what face value was. Thus this bond would be selling at a discount.


Jun 12th, 2015

Please feel free to ask me any questions and I hope i explained the answers very well. Please add me if you feel I can help you in the future. Best of luck to you

Jun 12th, 2015

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Feb 23rd, 2015
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Feb 23rd, 2015
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