A $50,000, level-coupon Eurobond has a 6% coupon and matures in ten years. At what price...
A $50,000, level-coupon Eurobond has a 6% coupon and matures in ten years. At what price should the bond sell today if the prevailing interest rate is 8% per annum? Round your answer to the nearest dollar.
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A) $43,290 |
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B) $29,870 |
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C) $50,000 |
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D) $57,360 |
Homework Answers
Annual coupon=50,000*6%=$3000
Hence price of bond=Annual coupon*Present value of annuity factor(8%,10)+$50,000*Present value of discounting factor(8%,10)
=3000*6.710081399+$50,000*0.463193488
=$43290(Approx).
NOTE:
1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=3000[1-(1.08)^-10]/0.08
=3000*6.710081399
2.Present value of discounting factor=50,000/1.08^10
=50,000*0.463193488
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