Exhibit 20-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
A major retailer is reevaluating its bonds since it is planning to issue a new bond in the current market. The firm's outstanding bond issue has 8 years remaining until maturity. The bonds were issued with a 6.5% coupon rate (paid quarterly) and a par value of $1,000. The required rate of return is 4.25%.
-Refer to Exhibit 20-1. What will be the value of these securities in one year if the required return is 7%?
A) $970.14
B) $388.13
C) $1031.15
D) $1035.81
E) $972.52

Question

Quizplus · Accepted Answer

The bond's value is calculated using the present value of its future cash flows, which include the quarterly coupon payments and the par value at maturity. With a required return of 7%, the bond's value is $972.52.

Exhibit 20-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)