Respuesta :
Answer:
$841 approx
Explanation:
Bonds refer to debt instruments whereby the issuer raises long term finance, agreeing to pay the lenders, a fixed rate of coupon payments at regular intervals and repayment of principal upon maturity.
The present value of a bond is represented as:
[tex]B_{0} = \frac{C}{(1\ +\ K)^{1} } \ +\ \frac{C}{(1\ +\ K)^{2} } \ +\ ....\frac{C}{(1\ +K)^{n} }\ +\ \frac{RV}{(1\ +\ K)^{n} }[/tex]
where [tex]B_{0} =[/tex] Present value of a bond
C = Annual coupon payments
k = yield to maturity/ cost of debt
n = years to maturity
RV = Redemption value
here, C = 1000 × 9% = $90
K = 11%
n = 20 years
RV = $1000
putting these values in the above equation, we have,
[tex]B_{0} = \frac{90}{(1\ +\ .11)^{1} } \ +\ \frac{90}{(1\ +\ .11)^{2} } \ +\ ....\frac{90}{(1\ +.11)^{20} }\ +\ \frac{1000}{(1\ +\ .11)^{20} }[/tex]
[tex]B_{0}[/tex] = 7.9633 × 90 + 0.124 × 1000
[tex]B_{0}[/tex] = 716.699 + 124.033
[tex]B_{0}[/tex] = $ 840.73 OR $ 841 approx.
Thus, the bond will sell at $841 today.
Bonds are defined as the business instrument, in which the issuer raises the long-term finance by agreeing to pay to the lenders at fixed installements at regular intervals.
The present value of the bond can be calculated by the formula:
[tex]\rm B_0&= \rm \dfrac{C}{(1 + K)^1} + \dfrac{C}{(1 + K)^2}+.....\dfrac{C}{(1 + K)^n} + \dfrac{RV}{(1 + K)^n}[/tex]
where,
C = Annual coupon payments = [tex]1000 \times 9\% = \$90[/tex]
K = Yield to Maturity = 11 %
n = Years to the Maturity = 20 years
RV = Redemption Value = [tex]\[/tex] 1000
Substituting the values in the above formula, we get:
[tex]\rm B_0&= \rm \dfrac{90}{(1 + 0.11)^1} + \dfrac{90}{(1 + 0.11)^2} + ....... \dfrac{90}{(1 + 0.11)^{20}} + \dfrac{1000}{(1 + 0.11)^{20}}[/tex]
[tex]\rm B_0&=7.9633 \times 90 + 0.124 \times 1000\\\\\rm B_0&=716.699 + 124.033\\\\\rm B_0&=\$ 840.73[/tex]
Thus, the values of bonds will be [tex]\[/tex]841 (approx) today.
To know more about bonds, refer to the following link:
https://brainly.com/question/7554440
