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    LoriTurner's Avatar
    LoriTurner Posts: 4, Reputation: 1
    New Member

    Jun 3, 2006, 02:12 PM
    hope somebody can figure this out

    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's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
    Ultra Member

    Jun 3, 2006, 05:45 PM
    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

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