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Jason Brown calls his broker to Inquire about purchasing a bond of Disk Storage Systems
Jason Brown calls his broker to Inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,170. Jason is concerned that the bond might be overpriced based on the facts Involved. The $1.000 par value bond pays 15 percent Interest, and it has 18 years remaining until maturity. The current yleld to maturity on similar bonds is 13 percent. a. Calculate the present value of the bond. Use Appendix Band Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.) Present value b. Do you think the bond is overpriced? Yes O No
Expert Solution
Here coupon payment frequency is not provided
CASE 1: COUPONS ARE ANNUAL
1.
=PV(13%,18,-15%*1000,-1000)
=1136.80
2.
Yes
CASE 2: COUPONS ARE SEMIANNUAL
1.
=PV(13%/2,18*2,-15%*1000/2,-1000)
=1137.91
2.
Yes
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