With celebrity bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of...
With celebrity bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of the music are used to pay interest and principal on the bonds. In April of 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 6.8%and will mature on this day 20 years from now. The yield on the bond issue is currently 6.4%. At what price should this bond trade today, assuming a face value of $1,000 and annual coupons?
Homework Answers
The bond price is computed as shown below:
The coupon payment is computed as follows:
= 6.8% x $ 1,000
= $ 68
So, the price of the bond will be:
= $ 68 / 1.0641 + $ 68 / 1.0642 + $ 68 / 1.0643 + $ 68 / 1.0644 + $ 68 / 1.0645 + $ 68 / 1.0646 + $ 68 / 1.0647 + $ 68 / 1.0648 + $ 68 / 1.0649 + $ 68 / 1.06410 + $ 68 / 1.06411 + $ 68 / 1.06412 + $ 68 / 1.06413 + $ 68 / 1.06414 + $ 68 / 1.06415 + $ 68 / 1.06416 + $ 68 / 1.06417 + $ 68 / 1.06418 + $ 68 / 1.06419 + $ 68 / 1.06420 + $ 1,000 / 1.06420
= $ 1,044.43 Approximately
Feel free to ask in case of any query relating to this question
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With celebrity bonds, celebrities raise money by issuing bonds
to investors. The royalties from sales of...
With celebrity bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of...
With celebrity bonds, celebrities raise money by issuing bonds to investors. The royalties from sales of the music are used to pay interest and principal on the bonds. In April of 2009, EMI announced that it intended to securitize its back catalogue with the help of the Bank of Scotland. The bond was issued with a coupon rate of 6.9% and will mature on this day 36 years from now. The yield on the bond issue is currently 6.1%. At...
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