The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?

Value of Firm's Debt is $541.20

Explanation:

Coupon payment = 1000 x 4% = $40 / 2  = $20

Number of periods = n = 10 years x 2 = 20

Face value = $1,000

YTM = 12% / 2 = 6% = 0.06

Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula:

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Price of the Bond =$20 x [ ( 1 - ( 1 + 6% )^-20 ) / 6% ] + [ $1,000 / ( 1 + 6% )^20 ]

Price of the Bond = $20 x [ ( 1 - ( 1.06 )^-20 ) / 0.06 ] + [ $1,000 / ( 1.06 )^20 ]

Price of the Bond = $229.4 + $311.80

Price of the Bond = $541.20

answer: life insurance

explanation: