International Cruise Lines sold an issue of 15-year $1,000 parbonds to

QUESTION

International Cruise Lines sold an issue of 15-year $1,000 parbonds to build new ships. The bonds pay 6.85% interest,semi-annually. Todays required rate of return is 8.35%. How muchshould these bonds sell for today? Round off to the nearest$1.a. $1,065b. $873c. $936d. $918
Par Value of theBond $1,000 Semi annual Coupon Payment [$1,000 *(6.85%/2)] $34.25 Nubmer of years toMaturity 15 years Rate of Return (YTM) [8.35% /2] 4.175% Calculating BondPrice: BondValue = Present Value of the Coupons Present Value ofthe Face Amount Bond Value = C *[1-1/(1 r) t ]/r F /(1 r) t Bond Value= $34.25 * [1-1/(1 0.04175) 15*2 ]

.04175 $1,000 / (1 0.04175) 15*2 Bond Value =$34.25 * [1-1/(1.04175) 30 ] /0.04175 $1,000 / (1.04175) 30 Bond Value =$34.25 * 16.930467 [$1,000 / 3.411185005] Bond Value = $579.86 $293.15 Bond Value= $873 Answer is Option (b)$873

ANSWER:

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