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by wtschenck on October 23rd, 2009
(I'm assuming you meant "a $1000 bond" and hit the "4" without shifting to make the "$" sign...)
The 7.5% bond would pay $1,750 at maturity. I understand you want to yield 9%, so you need to discount the price of the bond to increase the effective 10-year yield. Given the assumptions at hand, the bond should sell at $833.33 (fair present value) to yield 9%. The payout at maturity will still be $1,750, but you paid less to get it.
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You're reading If A 41,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%. What is the fair value of this bond?
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