Complex Systems has an outstanding issue of $1,000 parvalue bonds with a 12% coupon
interest rate. The issue pays interest annually and has 16 years remaining to its maturity
date.
a) If bonds of similar risk are currently earning a 10% rate of return, how much should
the Complex Systems bond sell for today?
A)
FV
1000
PMT (Payment Per Period)
120
N
16
Rate
10.00%
PV
$1,156.47
So the Bond must sell for
$1,156.47
b) Describe the two possible reasons why the rate on similar risk bonds is below the
coupon interest rate on the Complex Systems bond.
B)
Two possible reason could be:
1) The current real interest rate is 10%
2) Credit rating of similar bond is higher (that is they are less risky).
This is the end of the preview.
Sign up
to
access the rest of the document.
 Winter '11
 STEVEJOSEPH
 Interest, The Current

Click to edit the document details