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Hawk, Inc. issued 20,000 shares of bond on 1/1/2018. Those are $1,000/ share par value, 8...

Hawk, Inc. issued 20,000 shares of bond on 1/1/2018. Those are $1,000/ share par value, 8 year, 5% stated interest rate bonds. The prevailing market rate on 1/1/2018 was 8%. Calculate the price of the bond.

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Answer #1

ANSWER

Par Value = $1,000

Annual Coupon Rate = 5%
Annual Coupon = 5% * $1,000
Annual Coupon = $50

Time to Maturity = 8 years
Annual Market Rate = 8%

Price of Bond = $50 * PVIFA(8%, 8) + $1,000 * PVIF(8%, 8)
Price of Bond = $50 * (1 - (1/1.08)^8) / 0.08 + $1,000 / 1.08^8
Price of Bond = $287.33+ $540.27
Price of Bond = $827.60

So, current price of bond is $827.60

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