Question

Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., at a price of 943.22. The bond has a coupon rate of 9 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today. Should she buy the bonds at the offered price

Answer 1

Answer:

Yes

Explanation:

Given:

• F = 1000$

• n = 7

• Coupon rate = 9%, because  it pays the coupon semiannually, so

=> Coupon payment = 1000*9%/2 = 45

• Current market rate, YMT=  10%

So the current value of bond is:

C(1- (1+r)^(-n)/r + F/($(1+r)^{n}$

<=>45(1 - (1+0,1)^(-7/0.1)) + 1000(1+0,1)^7

<=> C = $951

So she will buy the bonds at the offered price 943.22 because it is smaller than $951