Question

A firm has 10,000 bonds, each with a coupon rate of 4%, payable semiannually, and a...

A firm has 10,000 bonds, each with a coupon rate of 4%, payable semiannually, and a par value of $1,000. The bonds mature in 10 years. The yield to maturity is 12%, so the bonds now sell below par. What is the TOTAL VALUE of the firm's bonds?

$5,412,031.51

$5,479,821.58

$2,531,021.01

$7,706,055.89
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Homework Answers

Answer #1

We first find the Present value of the bond or the bond price.

Using a financial calculator, we input the following

N = 20 ( Since there are 10 years and 10*2 = 20 semi-annual periods)

PMT = 20 ( Since 4%/2 = 2% is the semi-annual coupon)

I/Y = 6 ( YTM is 12%, hence yield per period is 12%/2 = 6%)

FV = 1000 ( Par value)

CPT PV, we get

PV = -541.203151

Hence the bond price is $541.203151

TOTAL VALUE of the firm's bonds = 10000*$541.203151

Hence, TOTAL VALUE of the firm's bonds = $5,412,031.51

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