Creative Financing Inc. is planning to offer a $1000 par value 16 year maturity bond with a coupon interest rate that changes every 4 years. The coupon rate for the first four years is 6.8%, 7.2% for the next four years, 8.9% for the next four years and 9.3% for the final four years.

If you require a rate of return of 8.1% on a bond of this quality and maturity, what is the maximum price you would pay for the bond? Assume interest is paid annually at the end of each year.

Answer rating: 100% (QA)

To calculate the maximum price you would pay for the bond we need to determine the present value of its cash flows using the required rate of return of 81 Lets break down the cash flows for each 4year ... View the full answer