Several years ago, castles in the sand, inc. issues bonds at face value of $1,000 at a yield to maturity of 8.8%. Now, with 7 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 14%. What is the price of the bond now? b. Suppose that investors believe that castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principle comes due. The expectations is that investors will receive only 86% of face value at maturity. If they buy the bond today, what yield to maturity do they except to receive?
Several years ago, castles in the sand, inc. issues bonds at face value of $1,000 at a yield to maturity of 8.8%. Now, with 7 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 14%. What is the price of the bond now?
b. Suppose that investors believe that castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principle comes due. The expectations is that investors will receive only 86% of face value at maturity. If they buy the bond today, what yield to maturity do they except to receive?
face value = 1000
coupon rate = 8.8%
n = 7 years
coupon = 88
periods = 7
ytm = 14%
present value price = 772.62 [pv(rate,nper,pmt,fv,0)]
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