Question

Applied Software has a $1,000 par value bond outstanding that pays 20 percent interest with annual payments. The current yield to maturity on such bonds in the market is 9 percent.  

Compute the price of the bonds for these maturity dates: (Use a Financial calculator to arrive at the answers. Do not round intermediate calculations. Round the final answers to 2 decimal places.)

	Price of the bond
a. 30 years	$
b. 18 years	$
c. 4 years	$

Answer 1

Price of the bond = PV of cash flows from it

a 30 years

Year	CF	PVF @ 9%	Disc CF
1	$    200.00	0.9174	$    183.49
2	$    200.00	0.8417	$    168.34
3	$    200.00	0.7722	$    154.44
4	$    200.00	0.7084	$    141.69
5	$    200.00	0.6499	$    129.99
6	$    200.00	0.5963	$    119.25
7	$    200.00	0.5470	$    109.41
8	$    200.00	0.5019	$    100.37
9	$    200.00	0.4604	$      92.09
10	$    200.00	0.4224	$      84.48
11	$    200.00	0.3875	$      77.51
12	$    200.00	0.3555	$      71.11
13	$    200.00	0.3262	$      65.24
14	$    200.00	0.2992	$      59.85
15	$    200.00	0.2745	$      54.91
16	$    200.00	0.2519	$      50.37
17	$    200.00	0.2311	$      46.21
18	$    200.00	0.2120	$      42.40
19	$    200.00	0.1945	$      38.90
20	$    200.00	0.1784	$      35.69
21	$    200.00	0.1637	$      32.74
22	$    200.00	0.1502	$      30.04
23	$    200.00	0.1378	$      27.56
24	$    200.00	0.1264	$      25.28
25	$    200.00	0.1160	$      23.19
26	$    200.00	0.1064	$      21.28
27	$    200.00	0.0976	$      19.52
28	$    200.00	0.0895	$      17.91
29	$    200.00	0.0822	$      16.43
30	$    200.00	0.0754	$      15.07
30	$1,000.00	0.0691	$      69.15
Price of the Bond	$2,123.88

b. 18 years

Year	CF	PVF @ 9%	Disc CF
1	$    200.00	0.9174	$    183.49
2	$    200.00	0.8417	$    168.34
3	$    200.00	0.7722	$    154.44
4	$    200.00	0.7084	$    141.69
5	$    200.00	0.6499	$    129.99
6	$    200.00	0.5963	$    119.25
7	$    200.00	0.5470	$    109.41
8	$    200.00	0.5019	$    100.37
9	$    200.00	0.4604	$      92.09
10	$    200.00	0.4224	$      84.48
11	$    200.00	0.3875	$      77.51
12	$    200.00	0.3555	$      71.11
13	$    200.00	0.3262	$      65.24
14	$    200.00	0.2992	$      59.85
15	$    200.00	0.2745	$      54.91
16	$    200.00	0.2519	$      50.37
17	$    200.00	0.2311	$      46.21
18	$    200.00	0.2120	$      42.40
18	$1,000.00	0.2120	$    211.99
Price of the Bond	$1,963.12

C 4 years

Year	CF	PVF @ 9%	Disc CF
1	$    200.00	0.9174	$    183.49
2	$    200.00	0.8417	$    168.34
3	$    200.00	0.7722	$    154.44
4	$    200.00	0.7084	$    141.69
4	$1,000.00	0.7084	$    708.43
Price of the Bond	$1,356.37

Plz comment, if any further assistance is required