The James Bond Series Corporation issued a non-traditional bond. Its par-value is $1000 (i.e. principle) and...

Transcribed Image Text:

The James Bond Series Corporation issued a non-traditional bond. Its par-value is $1000 (i.e. principle) and it never matures. In other words, it will not mature till the end of time, meaning that you will never get your principal back. The annual coupon (i.e. interest payment) is $50 in the first year. It increases at a constant rate of 2% every year in the future. The discount rate is 3%. (hint: We did not cover bond pricing. However, bond pricing should be similar to stock valuation.) (a) How much would you pay for this bond? (4 points) (b) If the discount rate is 1% (rather than 3%), how much would you pay for this bond? Explain. (6 points) The James Bond Series Corporation issued a non-traditional bond. Its par-value is $1000 (i.e. principle) and it never matures. In other words, it will not mature till the end of time, meaning that you will never get your principal back. The annual coupon (i.e. interest payment) is $50 in the first year. It increases at a constant rate of 2% every year in the future. The discount rate is 3%. (hint: We did not cover bond pricing. However, bond pricing should be similar to stock valuation.) (a) How much would you pay for this bond? (4 points) (b) If the discount rate is 1% (rather than 3%), how much would you pay for this bond? Explain. (6 points)

Answer rating: 100% (QA)

To determine the value of the nontraditional bond issued by the James Bond Series Corporation you ca... View the full answer