21 years ago, Delicious Mills, Inc. issued 30-year to maturitybonds that had a 9.78 percent...

21 years ago, Delicious Mills, Inc. issued 30-year to maturity bonds that had a 9.78 percent annual coupon rate, paid semiannually. The bonds had a $1,000 face value. Since then, interest rates in general have changed and the yield to maturity on the Delicious Mills bonds is now 8.93 percent. Given this information, what is the price today for a Delicious Mills bond? Round the answer to two decimal places. Financial calculator can be used.

Expert Solution

The price is computed as follows:

I am doing the question using financial calculator, since in the question it is mentioned that the financial calculator can be used.

Plug the below variables in the financial calculator as follows: (TEXAS BA II PLUS)

FV = 1,000

N = 18 (9 years remaining till maturity x 2)

I/Y = 4.465 (8.93 / 2)

PMT = 48.9 (9.78% / 2 x 1,000)

Finally press CPT and then press PV. It will give PV equal to 1,051.82 Approximately

While computing N, it has been multiplied by 2 and while computing I/Y, it has been divided by 2, since the interest is compounded semi annually.

jeff jeffy answered 2 years ago

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