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Yumtum Ltd has a 4 year bond outstanding that pays a 6% coupon rate, paid quarterly
Yumtum Ltd has a 4 year bond outstanding that pays a 6%
coupon rate, paid quarterly. If investors require an 8% return, what price
should the bond sell for?
Expert Solution
We can calculate the price of bond by using the following formula in excel:-
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of bond
Rate = 8%/4 = 2% (quarterly)
Nper = 4*4 = 16 periods (quarterly)
Pmt = Coupon payment = $1,000*6%/4 = $15
FV = $1,000
Substituting the values in formula:
= -pv(2%,16,15,1000)
= $932.11
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