Question

Haskell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 8.5%, based on semiannual compounding. What is the bond's price?

Answer 1

The price of the bond can be calculated using the present value formula.

Step-by-step explanation:

The price of a bond can be calculated using the present value formula. In this case, the bond has a 10-year maturity and a 6.25% semiannual coupon. The going interest rate is 8.5%. To calculate the bond's price, you can use the formula:

1. Calculate the number of coupon payments remaining, which is 10 years * 2 = 20.
2. Calculate the present value of each coupon payment using the formula: Present Value = Coupon Payment / (1 + Interest Rate)^n, where n is the number of periods remaining.
3. Calculate the present value of the final coupon payment and the par value, and sum them to get the bond's price.

Using the given information, the bond's price would be $1,026.41.