Question

3. Malindi Ltd has a 12% bond (per value Shs. 1000). This bond pays interest at the end of each year and has four years to maturity.

Required:

Determine the value of this bond if required return is 10%

Answer 1

K = N

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

k=1

K =4

Bond Price =∑ [(12*1000/100)/(1 + 10/100)^k]     +   1000/(1 + 10/100)^4

k=1

Bond Price = 1063.4