Smith's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000...

Smith's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 6%; and the yield to maturity is 8%. What is the bond's current value? If the market interest rate on Smith's bond decreased to 4%, what would the price of the bond be today?

Expert Solution

ANSWER = 1

CALCULATION OF THE PRESENT VALUE OF THE BOND WITH YIELD TO MATURITY 8%
Step 1 : Calculation of Annual Coupon Payments
Par value of the bond issued is =			$ 1,000.00
Annual Coupon %			6.00%
Annual Coupon Amount			$ 60.00

Step 2: Calculate number of years to Maturity
Number of years to maturity = 10 years

Step 3 : Yield to Maturity = 8%, So discount rate = 8%

PVF = 1 / Discount rate = 1/ 1.08
Result of above will again divide by 1.08 , repeat this till last period

Option 1= Life of the bond is 10 years

CALCULATION OF CURRENT MARKET PRICE OF THE BOND OR PURCHASE PRICE

Years	Interest	Amount	PVF @ 8%	PresentValue
1	Interest	$ 60.00	0.9259	$ 55.56
2	Interest	$ 60.00	0.8573	$ 51.44
3	Interest	$ 60.00	0.7938	$ 47.63
4	Interest	$ 60.00	0.7350	$ 44.10
5	Interest	$ 60.00	0.6806	$ 40.83
6	Interest	$ 60.00	0.6302	$ 37.81
7	Interest	$ 60.00	0.5835	$ 35.01
8	Interest	$ 60.00	0.5403	$ 32.42
9	Interest	$ 60.00	0.5002	$ 30.01
10	Interest	$ 60.00	0.4719	$ 28.32
10	Bond Value	$ 1,000.00	0.4719	$ 471.93
	Total			$ 875.06

	Current Value of the Bond =		$ 875.06





ANSWER = 2

CALCULATION OF THE PRESENT VALUE OF THE BOND WITH YIELD TO MATURITY 4%
Step 1 : Calculation of Annual Coupon Payments
Par value of the bond issued is =			$ 1,000.00
Annual Coupon %			6.00%
Annual Coupon Amount			$ 60.00

Step 2: Calculate number of years to Maturity
Number of years to maturity = 10 years

Step 3 : Market rate of interest Rate = 4%, So discount rate = 4%

PVF = 1 / Discount rate = 1/ 1.04
Result of above will again divide by 1.04 , repeat this till last period

Option 1= Life of the bond is 10 years

CALCULATION OF CURRENT MARKET PRICE OF THE BOND OR PURCHASE PRICE

Years	Interest	Amount	PVF @ 4%	PresentValue
1	Interest	$ 60.00	0.9615	$ 57.69
2	Interest	$ 60.00	0.9246	$ 55.47
3	Interest	$ 60.00	0.8890	$ 53.34
4	Interest	$ 60.00	0.8548	$ 51.29
5	Interest	$ 60.00	0.8219	$ 49.32
6	Interest	$ 60.00	0.7903	$ 47.42
7	Interest	$ 60.00	0.7599	$ 45.60
8	Interest	$ 60.00	0.7307	$ 43.84
9	Interest	$ 60.00	0.7026	$ 42.16
10	Interest	$ 60.00	0.6756	$ 40.53
10	Bond Value	$ 1,000.00	0.6756	$ 675.56
	Total			$ 1,162.22

	Bonds Price is the today=		$ 1,162.22

jeff jeffy answered 1 year ago

Wilson Wonders’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have...

Wilson Wonders’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $900. What is their yield to maturity? Can you please assist.

Madsen Motors's bonds have 10 years remaining to maturity. Interest is paid annually, they have a...

Madsen Motors's bonds have 10 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 11%, and the yield to maturity is 12%. What is the bond's current market price? Round your answer to the nearest cent.

The Brownstone Corporation's bonds have 4 years remaining to maturity. Interest is paid annually, the bonds...

The Brownstone Corporation's bonds have 4 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. What is the yield to maturity at a current market price of $880? Round your answer to two decimal places. % What is the yield to maturity at a current market price of $1,129? Round your answer to two decimal places. %

The Brownstone Corporations bonds have 5 years remaining to maturity. Interest is paid annually, the bonds...

The Brownstone Corporations bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. a) What is the yield to maturity at a current market price of $849? $ b) What is the yield to maturity at a current market price of $1,146? $ c) Would you pay $849 for one of these bonds if you thought that the appropriate rate of YTM was 12%? Explain.

Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the bonds have...

Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 5.5 percent. The bonds have a yield to maturity of 8 percent. 1. What is the current market price of these bonds? 2. What is the current yield? 3. What is the capital gain/loss yield?

Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have...

Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10.5%. The bonds have a yield to maturity of 11%. What is the current market price of these bonds? Round your answer to the nearest cent.

Madsen Motors's bonds have 13 years remaining to maturity. Interest is paid annually; they have a...

Madsen Motors's bonds have 13 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 11%; and the yield to maturity is 9%. What is the bond's current market price? Round your answer to the nearest cent.

Madsen Motors's bonds have 25 years remaining to maturity. Interest is paid annually, they have a...

Madsen Motors's bonds have 25 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 11%, and the yield to maturity is 12%. What is the bond's current market price? Round your answer to the nearest cent.

Madsen Motors's bonds have 20 years remaining to maturity. Interest is paid annually; they have a...

Madsen Motors's bonds have 20 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 6.5%; and the yield to maturity is 11%. What is the bond's current market price? Round your answer to the nearest cent.

Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually; they have a...

Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 7.5%; and the yield to maturity is 13%. What is the bond's current market price? Round your answer to the nearest cent. $

Question