Question

​(Present value​) The Kumar Corporation is planning on issuing bonds that pay no interest but can be converted into $ 9000 at​ maturity, 20 years from their purchase. To price these bonds competitively with other bonds of equal​ risk, it is determined that they should yield 11 ​percent, compounded annually. At what price should the Kumar Corporation sell these​ bonds? Kumar Corporation should sell these bonds at ​

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =20

Bond Price =∑ [(0*9000/100)/(1 + 11/100)^k]     +   9000/(1 + 11/100)^20

k=1

Bond Price = 1116.31