You have some money to invest and you are considering purchasing unsecured notes which are a bond-type instrument that have been issued by JoJo Inc. The notes has $1,000 par value, mature in five years and have coupon rate of 10.75%, with coupon paid annually. What price(value) would you be prepared to pay for the notes if your alternative is to invest in your friends company who will guarantee you a 10% pa return?
You have some money to invest and you are considering purchasing unsecured notes which are a bond-type instrument that have been issued by JoJo Inc. The notes has $1,000 par value, mature in five years and have coupon rate of 10.75%, with coupon paid annually. What price(value) would you be prepared to pay for the notes if your alternative is to invest in your friends company who will guarantee you a 10% pa return?
Face value =$1000
Time =5 years
Semi annual period = 5*2 =10
Coupon rate = 10.75% paid annually
Semi-annual coupon rate = 5.375%
Coupon payment = 53.75
Interest rate = 10% per annum
Semi annual interest =5%
The price of notes = Using excel PV function
Syntax: PV(semi annual rate, semi annual period, semi annual coupon payment, face value, 0)
Step by step
Solved in 2 steps
