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Barry's Steriod Company has 1,000 par value bonds outstanding at 16 percent interest. The bonds will...
Barry's Steriod Company has 1,000 par value bonds outstanding at 16 percent interest. The bonds will mature in 40 years. If the percent yield to maturity is 13 percent, what percent of the total bond value does the repayment of the principle represent.
Solutions
Expert Solution
| Cash flow in years 1 to 39 | = | coupon X Par value | 16%X1000 | = | 160 | ||||||||||||||||||||||||||||||||||||
| Cah flow in year 40 | = | Coupon + Par value | 160+1000 | = | 1160 | ||||||||||||||||||||||||||||||||||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | Year 11 | Year 12 | Year 13 | Year 14 | Year 15 | Year 16 | Year 17 | Year 18 | Year 19 | Year 20 | Year 21 | Year 22 | Year 23 | Year 24 | Year 25 | Year 26 | Year 27 | Year 28 | Year 29 | Year 30 | Year 31 | Year 32 | Year 33 | Year 34 | Year 35 | Year 36 | Year 37 | Year 38 | Year 39 | Year 40 | ||
| Cash Flows | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 160 | 1160 | |
| Present value | 160/(1+13%) | 160/(1+13%)^2 | 160/(1+13%)^3 | ---------------------------------- | 1160/(1+13%)^40 | ||||||||||||||||||||||||||||||||||||
| Present Value | 141.6 | 125.3 | 110.9 | 98.1 | 86.8 | 76.9 | 68.0 | 60.2 | 53.3 | 47.1 | 41.7 | 36.9 | 32.7 | 28.9 | 25.6 | 22.6 | 20.0 | 17.7 | 15.7 | 13.9 | 12.3 | 10.9 | 9.6 | 8.5 | 7.5 | 6.7 | 5.9 | 5.2 | 4.6 | 4.1 | 3.6 | 3.2 | 2.8 | 2.5 | 2.2 | 2.0 | 1.7 | 1.5 | 1.4 | 8.7 | |
| Bond Value | = | 1229.0 | (sum of above present values) | ||||||||||||||||||||||||||||||||||||||
| Principal/Bond value | 1000/1229 | ||||||||||||||||||||||||||||||||||||||||
| = | 81.4% | ||||||||||||||||||||||||||||||||||||||||
jeff jeffy answered 2 years agoRelated Solutions
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