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).
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 Winter '11
 STEVEJOSEPH

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