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Problem 10-3 Bond value [LO3] Exodus Limousine Company has $1,000 par value bonds outstanding at 10...
| Problem 10-3 Bond value [LO3] Exodus Limousine Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the percent yield to maturity is: (Round your final answers to 2 decimal places. Assume interest payments are annual.) |
||||
| Input variables: | ||||
| Par value | $1,000 | |||
| Coupon rate | 10 | percent | ||
| Number of years | 50 | years | ||
| a. Yield to maturity | 5 | percent | ||
| b.Yield to maturity | 15 | percent | ||
| Solution and Explanation: | ||||
| a. | ||||
| Price | ||||
| b. | ||||
| Price | ||||
Solutions
Expert Solution
a. Price of the bond at yield to maturity of 5%.
Information provided:
Par value= future value= $1,000
Time= 50 years
Coupon rate= 10%
Coupon payment= 0.10*1,000= $100
Yield to maturity= 5%
The price of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 100
I/Y= 5
N= 50
Press the CPT key and PV to compute the present value.
The value obtained is 1,912.80.
Therefore, the price of the bond is $1,912.80.
b. Price of the bond at yield to maturity of 15%.
Information provided:
Par value= future value= $1,000
Time= 50 years
Coupon rate= 10%
Coupon payment= 0.10*1,000= $100
Yield to maturity= 15%
The price of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 100
I/Y= 15
N= 50
Press the CPT key and PV to compute the present value.
The value obtained is 666.97.
Therefore, the price of the bond is $666.97.
jeff jeffy answered 2 years agoRelated Solutions
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