Hanna Inc. has a proprietary bond-rating model and has determined the required return on the following Amerco bond is 7.5%. Assume the bond is being evaluated in the current month of 2020 and matures in the current month of the year indicated. Based on this information, calculate the amount the bond is over - or under-priced. Bond Coupon (%) Maturity Last Price (% of par) Amerco 9.125 2028 117.25 Answer: Over-priced by $76.05

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Business

Boston Stevens

21 October, 18:09

Hanna Inc. has a proprietary bond-rating model and has determined the required return on the following Amerco bond is 7.5%. Assume the bond is being evaluated in the current month of 2020 and matures in the current month of the year indicated. Based on this information, calculate the amount the bond is over - or under-priced. Bond Coupon (%) Maturity Last Price (% of par) Amerco 9.125 2028 117.25 Answer: Over-priced by $76.05

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Nehemiah Hobbs · Answer 1

Firstly, the question doesn't say anything about the frequency of coupon payment. Using trial and error method, based on the answer, I figured out that it pays semi-annual coupon payments.

Value of the bond = PV (rate = 7.5%/2, nper = 8*2, pmt = 91.25/2, fv = 1000, 0) = $1,096.45

Current Price = $1,172.50

Over valued by $76.05