Bond Valuation and Investment Decisions

Bond Issuer Microsoft

Callable Yes

Par value $1000

Coupon rate 3.50% per year

Payment schedule semiannual (May 15, November 15)

Maturity date 11/15/2042

Required rate of return 2.80% per year (compounded semiannually)

Current market price 86.699% of par value

Based on the information above, answer the following:

1. What is the bond’s current market price in dollars?

2. What is the amount of the bond’s semiannual coupon payment?

3. How many remaining future coupon payments are there for this bond?

4. What is the value of this bond, given a required return of 2.80% per year, compounded semiannually?

5. What is the expected return (yield-to-maturity) of this bond, given the market price shown above? Be sure to state your answer in annual terms.

6. Should we invest in this bond? Why or why not? Be sure to base your answer on the results of BOTH 4 and 5 above.

7. Is this bond selling at a premium or discount? How do you know?

8. Is the bond’s value greater than par, less than par, or equal to par? Why is this true?

Answer rating: 100% (QA)

1 What is the bonds current market price in dollars Answer The bonds current market price is 86699 8... View the full answer