Question

The Maryland Communications, Inc. has outstanding bonds with exactly 25 years remaining to maturity. The face value of the bonds is $1,000. The coupon rate on the bonds is 6%. The bond makes semiannual interest payments. The current market required rate of return on these bonds is 7%. What value do you place on one of these bonds?

Select one:

a. $ 917.59

b. $ 883.46

c.  $ 447.97

d. $ 882.72

e. none of the above

Answer 1

  

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Value of Bond =

Where r is the discounting rate of a compounding period i.e. 7% / 2 = 0.035

And n is the no of Compounding periods 25 years * 2 = 50

Coupon 6% / 2 = 0.03

=

= 882.72

Option d is correct.

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