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Compute the current value of the ABC Corporate bond if the YTM of the bond is 11.5% annually

Compute the current value of the ABC Corporate bond if the YTM of the bond is 11.5% annually

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Question 4A 

H&M is looking for financial investment in the securities market.  Two investment options are available in different securities: Bonds and ordinary shares.

 

  • ABC Corporate bond: the bond is paying 13% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 and will mature 12 years from now.

 

  • XYZ ordinary share: The company Management plans to pay a dividend of $8.50 per share next year and estimated steady growth of 3% in dividends over the foreseeable future. The required rate of return for shares of this type is 15%.

 

Required:

 

  1. Compute the current value of the ABC Corporate bond if the YTM of the bond is 11.5% annually 

 

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