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Question 4: Bond Pricing Problem (1 part, 10 points)
4. Alpha Beta Corp. has a bond issue outstanding a 5% coupon, semiannual payments, and 3 years remaining until maturity. The par value of the bond is $1,000. Determine the current value of the bond if present market conditions justify a 12% required rate of return. (Show all work.)
Expert Answer
Current market price = FAce value * PVIF ( i, n ) + Interest * PVIFA ( i, n )
1000 * PVIF ( 12/2 , 3 * 2 ) + 1000 * 2.5 % * PVIFA ( 6 % , 6 )
1000 * 0.7050 + 25 * 4.9173 = 705 + 122.9325 = $ 827.9325
