ac221_fall2012_solution to inclass exercise on bond retirement

4 since price book value there will be a gain from

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Unformatted text preview: ce arises because of rounding). The firm decides to buy back the bond from the open market on 1/1/2013. The current interest rate is 12%. What is the price of the bond on this date? There are two periods remaining till maturity, and the interest rate is currently at 12%. Price of bond on 1/1/2013 = $100,000 * PV(12%, 2pds) + $5,000 * PVA(12%, 2pds) = $88,169.25 Intuitively, the firm has to pay $88,169.25 in order to retire a bond (liability) with a c...
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