Discounting annual bond’s cash flows by this effective rate

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Reference no: EM131497647

Assume Lei’s bonds paid interest annually rather than semiannually. You could find the value of these bonds, in a market where the going nominal annual rate on the semiannual payment bonds is 7%, by finding the effective annual rate, which is 7.1225%, and then discounting the annual bond’s cash flows by this effective rate. The annual payment bonds would have a value of $1,352.72 versus $1,374.17. True or false?

Lei Corporation’s bonds have a 30-year maturity, a 10% semiannually coupon ($50 coupon payments are made every six months), a face value of $1,000, and cannot be called. The going nominal annual interest rate (rd) for similar semiannual payment bonds of equivalent risk is 7%. What is the bonds price?

Reference no: EM131497647

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