Question

A 12-year annual payment corporate bond has a market price of $925. It pays annual interest...

A 12-year annual payment corporate bond has a market price of $925. It pays annual interest of $60 and its required rate of return is 7 percent.By how much is the bond mispriced?  

An eight-year corporate bond has a 7 percent coupon rate. What should be the bond's price if the required return s 6 percent and the bond pays interest semiannually?  

step by step please

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Answer #1

Answer to First Question

Price Bond of the Bond = Present Value of coupon payments + Present Value of Par value

= $60 x [ PVIFA 7%, 12 Years] + $1,000 x [ PVIF 7%, 12 Years]

= [ $60 x 7.942686 ] + [ $1,000 x 0.444011 ]

= $476.56 + 444.01

= $920.57

The Bond is mispriced by $4.43 [ $925 – 920.57 ]

Answer to Second Question

Price Bond of the Bond = Present Value of coupon payments + Present Value of Par value

= $35 x [ PVIFA 3%, 16 Years] + $1,000 x [ PVIF 3%, 16 Years]

= [ $35 x 12.56110 ] + [ $1,000 x 0.623167]

= $439.64 + 623.17

= $1,062.81

“ Bond Price = $1,062.81 “

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