Vulcan, Inc., has 7.7 percent coupon bonds on the market that have 10 years left to...

Question

Question

Vulcan, Inc., has 7.7 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments

business finance

Answer 1

Answer #1

Annual coupon=1000*7.7%=77

Hence current price=Annual coupon*Present value of annuity factor(9.7%,10)+$1000*Present value of discounting factor(9.7%,10)

=77*6.22456119+1000*0.396217565

=$875.51(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=77[1-(1.097)^-10]/0.097

=77*6.22456119

2.Present value of discounting factor=1000/1.097^10

=1000*0.396217565

Answer 2

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