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Homework answers / question archive / The Sisyphean Company has a bond outstanding with a face value of $ 5,000 that reaches maturity in 8 years
The Sisyphean Company has a bond outstanding with a face value of $ 5,000 that reaches maturity in 8 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually.Assuming the appropriate YTM on the Sisyphean bond is7.6%,then the price that this bond trades for will be closest? to:
A.$ 6142
B.$ 7166
C.$ 5118
D.$ 4095
Given about Sisyphean Company's bond,
Face value = $5000
Years to maturity = 8 years
Coupon rate = 8% paid semiannually,
So, semiannual coupon payment = (Semiannual coupon rate)*face value = (8%/2)*5000 = $200
Yield to maturity = 7.6%
So, semiannual yield to maturity = annual yield/2 = 7.6/2 = 3.8%
Number of coupon payment = years to maturity*2 = 8*2 = 16
Price of the bond can be calculatedon financial calculator using following values:
FV = face value = 5000
PMT = periodic coupon payment = 200
N = Number of coupon payment = 16
I/Y = periodic yield = 3.8
Compute for PV, we get PV = -5118.26
So, Price of the bond is $5118.26 or approx $5118.
Option C is correct.
