YOUR BANK is thinking to issue a regular coupon bond (debenture) with following particulars: Maturity = 4
Question:
YOUR BANK is thinking to issue a regular coupon bond (debenture) with following particulars:
Maturity = 4 years, Coupon rate = 9.000%, Face value = $1,000.00, Coupon payments are annual at the end of year.
In the fixed-income securities market, the yield curve for a bond with a similar default risk characteristics as one issued by YOUR BANK, is upward-sloping with the following interest rates per annum continuously compounded:
R,0,1 = 8% R,0,2 = 9% R,0,3 = 10% R,0,4 = 10.250% R,0,5 = 11.5%
Where, the notation R is the spot-interest rate (at time t=0) for T year maturity zero-coupon bond. What should be the issue (offer) price per bond of YOUR BANK in US dollars?
A) $1,090.00
B) $1,033.121
C) $1,039.927
D) $1,111.243
E) $897.411
F) $1,000
G) $910.141
H) $981.495
I) $948.307
J) $941.109
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta