Zoro Sword company bonds pay an annual coupon of 9 1/2 %. they have 8 years to maturity and face value, or par, of $1000. compute the present value of Zoro bonds if investors required rate of return is 10%.

a) $950.00

b) $973.33

c) $ 1027.17

d) $1516.18


Please help me if you can, and if possible , expain the equation used.

CaptainForest

Answer: b) $973.33

Bond Price = C / (1+i) + C / (1+i)^2 + ....... + C / (1+i)^n + M / (1+i)^n

C = coupon payment
n = number of payments
i = interest rate, or required yield
M = value at maturity, or par value

Coupon = .095 x 1,000 = $95
Maturity of the bond = 8 years
Interest = 10%
Principle = 1,000

Bond Price = 95/1.1 + 95/1.1^2 + 95/1.1^3 + 95/1.1^4 + 95/1.1^5 + 95/1.1^6 + 95/1.1^7 + 95/1.1^8 + 1,000/1.1^8
Bond Price = 973.33