Acompany has an 8% bond that has a face value of $1,000 and matures in 30 years. assume that coupon payments are made semi-annually. the bonds are callable after 15 years at 108% of par value. what is the value of the bond if rates drop immediately to 6%? a. $1,277b. $2,192c. $1,452d. $1,229e. $602

a) 1,277 dollars

Explanation:

We have to solve for the present value of the coupon payment and maturity art the end of the bond life discounted at 6% annual rate:

Coupon payment

Coupon payment: 1,000 x 8% / 2 =40

time30 years x 2 = 60

market rate = 6% / 2 =0.03

PV$1,107.0225  

Maturity

Maturity   1,000.00  

time   60.00  

rate  0.03

PV   169.73  

PV coupon  $1,107.0225  

PV maturity  $   169.7331    

Total          $1,276.7556  

answer; /// i do believe the correct answer is (possession utility);