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Price of a Bond: Bond Valuation for Complex Systems

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Complex Systems has an outstanding issue of $1,000-par value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years reamining to its maturity date.

a. If bond of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today?

b. Describe the two possible reason why the rate on similar- risk bond is below the coupon interest rate on the Complex Systems bond?

c. If the required return were at 12% instead of 10%, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss?

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The solution calculates the price of the bond, describes two possible reason why the rate on similar-risk bond is below the coupon interest rate on the Complex Systems bond.

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Complex systems has an outstanding issue of $1,000-par value bonds with a 12% coupon interestrate. The issue pays interest annually and has 16 years reamining to its maturity date.
a. If bond of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today?

Price of bond
Coupon rate= 12%
Face value= $1,000
n= 16 periods (years to maturity)
r= 10.00% per period (bond of similar risk are currently earning a 10% rate of return)

Coupon payment per period= $120 =12%x$1,000.
Redemption ...

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