TeslaRati's outstanding bonds have a $1,000 par value which were issued 7 years ago. At the time of issuance, these bonds had a 25 year maturity and an annual coupon rate of 5%, and sold for $900. Today, 7 years later (i.e., t = 0), the market interest rate has stayed the same, but there is more competition in the corporate bond market, and to make its bonds still attractive, TeslaRati changes the aforementioned bonds' coupon payment from annual to monthly (the first time any company has done this in practice, quite an innovation by TeslaRati!)

How much is the bond selling for now (its price at t = 0)?

Answer rating: 100% (QA)

To determine the bonds price at t 0 we need to calculate the present value of its future cash flows ... View the full answer