Question

Kidder Corporations balance sheet shows an historical book value for long term debt ( bonds, at par) of $23,500,000. The bonds have a 6.4% coupon rate, payable semiannually and a par value of 1.000. They mature exactly 10 years from today. The yield to maturity is 9.20%, so the bonds now sell below par. What is the current market value of the firms debt? Please round your answer 2 decimal places.

Answer 1

Price of Bond = PV of CFs from it.

Period	CF	PVF @4.6%	Disc CF
1	$      32.00	0.9560	$   30.59
2	$      32.00	0.9140	$   29.25
3	$      32.00	0.8738	$   27.96
4	$      32.00	0.8354	$   26.73
5	$      32.00	0.7986	$   25.56
6	$      32.00	0.7635	$   24.43
7	$      32.00	0.7299	$   23.36
8	$      32.00	0.6978	$   22.33
9	$      32.00	0.6671	$   21.35
10	$      32.00	0.6378	$   20.41
11	$      32.00	0.6097	$   19.51
12	$      32.00	0.5829	$   18.65
13	$      32.00	0.5573	$   17.83
14	$      32.00	0.5328	$   17.05
15	$      32.00	0.5094	$   16.30
16	$      32.00	0.4870	$   15.58
17	$      32.00	0.4655	$   14.90
18	$      32.00	0.4451	$   14.24
19	$      32.00	0.4255	$   13.62
20	$      32.00	0.4068	$   13.02
20	$ 1,000.00	0.4068	$ 406.79
Price of Bond			$ 819.46

Market Value of Bonds = Debt * market price / Face Value

= $ 23,500,000 * 819.46 / 1000

= $ 19,257,232.39