Estimate the value of a 40 year bond for Boeing
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You have been asked to value a 40-year bond, issued by Boeing, with the following features. The coupon rate for the first 20 years will be 6% of the face value of $1000. After 20 years, the coupon rate will increase to 7% for the remaining 20 years. Estimate the value of this bond, if Boeing is rated AA. (AA-rated bonds are trading at a default spread of .50% over the treasury bond rate of 6.50%).
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In five lines of computations and explanations, the value of year bond for Boeing problem is solved.
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