Question

Eldora Ltd. recently issued deferred-coupon bonds for which no coupon payments will be paid in the...

Eldora Ltd. recently issued deferred-coupon bonds for which no coupon payments will be paid in the first two years of the bond's life. Regular annual coupon payments at a rate of 9% will then be made until the bonds mature at the end of six years. The spot rates for various maturities are given in the following table.

Time to Maturity Spot Rate

1 year 8.0%

2 years 7.5%

3 years 7.0%

4 years 6.5%

5 years 6.0%

6 years 5.5%

On the basis of these spot rates, the price of the bond today is closest to:

A. 100.12.

B. 108.20

.C. 116.24.

Homework Answers

Answer #1

Option A $100.12

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