Ethan owns a 1000 par value 10% bond with semiannual coupons. The bond will mature for 1000 at the end of 10 years. Current yield rates are 7% compounded semiannually. Ethan has decided that he would rather own an 8-year bond, and so he will sell the bond he owns and use all of the proceeds to purchase a 6% bond with semiannual coupons, maturing at par at the end of 8 years. Calculate the par value of the 8-year bond.

Ethan owns a 1000 par value 10% bond with semiannual coupons. The bond will mature for 1000 at the end of 10 years. Current yield rates are 7% compounded semiannually. Ethan has decided that he would rather own an 8-year bond, and so he will sell the bond he owns and use all of the proceeds to purchase a 6% bond with semiannual coupons, maturing at par at the end of 8 years. Calculate the par value of the 8-year bond.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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