Flyover Airlines Inc issued 20-year, 8% per annum semi-annual coupon b

Flyover Airlines Inc issued 20-year, 8% per annum semi-annual coupon bonds at their face value of $1,000. Immediately after issue a major disaster befell the airline and the yield to maturity on their bonds rose to 15%. per annum.

What is the new price of the firm’s bonds?
A) $559.20
B) $613.22
C) $1,000
D) $1324.18

ANSWER

A
Explanation: A) Via Calculator: N = 20*2, I = 15/2, PMT = 40, FV = 1,000 Solve for PV = $559.20.