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

jeff jeffy answered 2 years ago

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