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Jagdambay Manufacturing and Bond Evaluation

Words: 1446 Length: 5 Pages Document Type: Essay Paper #: 94965035

Case Study
Part I
Suppose Jagdambay manufacturing sells a bond paying a coupon rate of 5% per year with par value (face value) of $200,000 when the market rate is only 4% per year. The bond has 5 years until maturity.
What is the bond’s price today if market rate is 5%? Show your computations
The issuance of bonds is done with a fixed par value and the dividends paid out to preferred stockholders is done on the basis of a percentage of that par value at a fixed rate. The present day bond price is calculated as follows:
Bond Price = c / (1 + i) + c / (1 + i)2 + …+ c / (1 + i)n + M / (1 + i)n
In this case,
C is the coupon payment = $200,000
I is the interest rate = 5 percent
M is the value at maturity…… [Read More]

References
Investopedia.com (n.d.). Bond basics. Retrieved from: http://www.investopedia.com/university/bonds/
Investopdia. (n.d.). Bond Laddering. Retrieved from: https://www.investopedia.com/terms/b/bondladdering.asp
Woodside. (2009). Woodside to Issue $US 1 Billion in Corporate Bonds. Retrieved from: http://www.woodside.com.au/Investors-Media/Announcements/Documents/25.02.2009%20Woodside%20to%20Issue%20US$1%20Billion%20in%20Corporate%20Bonds.pdf
Investopedia. (2017). Why do interest rates tend to have an inverse relationship with bond prices? Retrieved from: https://www.investopedia.com/ask/answers/04/031904.asp