question archive Stark Corporation issued bonds at $1,000 per bond
Stark Corporation issued bonds at $1,000 per bond
Subject:FinancePrice:2.86 Bought8
Stark Corporation issued bonds at $1,000 per bond. The bonds had a 35 year life with a coupon rate of 8% paid annually. Assume 10 years later, due to bad publicity, the risk premium for the bonds have caused the risk premium to increase the overall market yields to 11%. The bonds have 25 years remaining until maturity. Compute the new price of the bond. Round to 2 decimal places.
$633.50
$587.62
$747.35
$686.27
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- $747.35
Step-by-step explanation
Price = Coupon *PVIFA(11%, 25)+Face Value*PVF(11% , 25)
Coupon = Coupon rate * Face Value = 8%*1000= 80
Price = $80 *PVIFA(11%, 25)+$1000*PVF(11% , 25)
Price = $80 *8.4217+$1000*0.0736 = $673.7396+73.6 = $747.35
