What price would you pay for a 5-year, BB bond with a Face Value of $1,000 and a coupon rate of 9.75%? Security RatingTreasuryTreasuryTreasuryTreasuryTreasuryCorp A ACorp BBBCorp C AAYearsFaceMaturity Value$13πω51020LO51020LA LA LA LA LA LA LA LA$$$$$$$1,0001,0001,0001,0001,0001,0001,0001,000Coupon MarketRatePrice0.00% $966.662.00% $939.064.40% $ 932.427.20% $ 1,007.126.60% $ 908.258.10% $1,000.007.90% $8.20% $859.88972.22

Variables in the question:Face value=$1000Coupon rate=9.75% (assumed compounded annually)Coupon…

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What price would you pay for a 5-year, BB bond with a Face Value of $1,000 and a coupon rate of 9.75%?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter9: Metric-analysis Of Financial Statements

Section: Chapter Questions

Problem 3SEQ

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

What price would you pay for a 5-year, BB bond with a Face Value of $1,000 and a coupon rate of 9.75%?

Security Rating
Treasury
Treasury
Treasury
Treasury
Treasury
Corp A A
Corp B
BB
Corp C AA
Years
Face
Maturity Value
$
1
3
πω
5
10
20
LO
5
10
20
LA LA LA LA LA LA LA LA
$
$
$
$
$
$
$
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
Coupon Market
Rate
Price
0.00% $966.66
2.00% $
939.06
4.40% $ 932.42
7.20% $ 1,007.12
6.60% $ 908.25
8.10% $1,000.00
7.90% $
8.20% $
859.88
972.22

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