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Navarro, Inc., plans to issue new zero coupon bonds with a par value of $1,000 to fund a new project. The bonds will have a YTM of 5.37 percent and mature in 15 years. If we assume semiannual compounding, at what price will the bonds sell?

Respuesta :

hyderali230

Answer:

The price at which bonds will be sold is $451.64.

Explanation:

Value of Bond = F = $1,000

Yield to maturity = y = 5.37% annually = 5.37 x 6/12 = 2.685% semiannually

Number of years = t = 15 years

Number of compounding period = 15 x 2 = 30 period

Use Following formula to calculate the value of bond

P = [tex]\frac{F}{(1+y)^t}[/tex]

P = [tex]\frac{1,000}{(1+0.02685)^30}[/tex]

P = $451.64

Because Zero Coupon rate the bond will sell today for $451.64

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