Question

In: Finance

Callaghan Motors’ bonds have 10 years remaining to maturity.Interest is paid annually, they have a...

Callaghan Motors’ bonds have 10 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 10.0%, and the yield to maturity is 9.5%. What is the bond’s current market price? Answer with 2 decimals ($1,000.00) Please Use Excel. 

Solutions

Expert Solution

Solution

Price of bond=Present value of coupon payments+Present value of face value

Price of bond=Coupon payment*((1-(1/(1+r)^n))/r)+Face value/(1+r)^n

Here

Face value =1000

n=number of periods to maturity=10

r-intrest rate per period=YTM=9.5%

Coupon payment=coupon rate *face value=10%*1000=100

Putting values in formula

Price of bond=100*((1-(1/(1+.095)^10))/.095)+1000/(1+.095)^10

Solving we get

Price of bond=1031.39

Using excel

To be calculated PV-Present value

nper-number of periods-10

rate-YTM-9.5%

Type-0(End of period payments)

pmt-Periodic coupon payments-100

fv-Future value-1000

Excel formula

=PV(rate,nper,pmt,fv,type)

Values to be entered

=PV(9.5%,10,100,1000,0)

Solving we get

PV=Current price of bond=$1031.39

 


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