Answer:
$886.78
Explanation:
Data provided in the question:
Amount of bond issued = $250 million
Coupon rate = 12%
Face value, FV = $1,000
Coupon value, C = 12% of $1,000 = $120
Duration = 12 years
Required rate of return = 14%
Price of a bond = [tex]C\frac{1-(1+r)^{-n}}{i}+\frac{FV}{(1+i)^n}[/tex]
on substituting the respective values, we get
Price of a bond = [tex]\$120\times\frac{1-(1+0.14)^{-12}}{0.14}+\frac{\$1000}{(1+0.14)^{12}}[/tex]
or
Price of bond = 679.23 + 207.55 = $886.78
