Question

Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 13 percent annual interest. The current yield to maturity on such bonds in the market is 14 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Compute the price of the bonds for these maturity dates: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)

		Bond Price
a.	30 years
b.	15 years
c.	9 years

Answer 1

			Bond Price
a.	30 Years		$ 929.97
Working:
Price of bond is the present value of cash flows from bond which is calculated as follows:
Price of bond		=	=-pv(rate,nper,pmt,fv)
		=	$ 929.97
Where,
pv	Present value of cash flows from bond			=	?
rate	Yield to maturity			=	14%
nper	Number of period			=	30
pmt	Coupon payment	=	1000*13%	=	$        130
fv	Par Value			=	$    1,000
			Bond Price
b.	15 Years		$ 938.58
Working:
Price of bond		=	=-pv(rate,nper,pmt,fv)
		=	$ 938.58
Where,
pv	Present value of cash flows from bond			=	?
rate	Yield to maturity			=	14%
nper	Number of period			=	15
pmt	Coupon payment	=	1000*13%	=	$        130
fv	Par Value			=	$    1,000
			Bond Price
c.	9 Years		$ 950.54
Working:
Price of bond		=	=-pv(rate,nper,pmt,fv)
		=	$ 950.54
Where,
pv	Present value of cash flows from bond			=	?
rate	Yield to maturity			=	14%
nper	Number of period			=	9
pmt	Coupon payment	=	1000*13%	=	$        130
fv	Par Value			=	$    1,000