Question

The Mariposa Co. has two bonds outstanding. One was issued 25 years ago at a coupon rate of 9%. The other was issued 5 years ago at a coupon rate of 9%. Both bonds were originally issued with terms of 30 years and face values of $1,000. The going interest rate is 12.5% today. What are the prices of the two bonds at this time? Assume bond coupons are paid semiannually. Round the answers to the nearest cent.

Old: $

New: $

Answer 1

F = Face value =	$1,000.00
C = Coupon rate = Semi-annual = Coupon /2 = 9%/2 =	4.50%
R = Rate = Required rate of return = Yield semi-annual = Yield / 2 = 12.5%/2 =	6.25%
Number of remaining coupon payments till maturity = N = 5 years x 2 = 10 =	10
PV or Price of Bond = (C x F x ((1-((1+R)^-N)) / R) + (F/(1+R)^N)
Price of the bond =4.5%*1000*(1-(1+6.25%)^-10)/6.25%+1000/(1+6.25%)^10
Price of the > Old bond =	$872.71

F = Face value =	$1,000.00
C = Coupon rate = Semi-annual = Coupon /2 = 9%/2 =	4.50%
R = Rate = Required rate of return = Yield semi-annual = Yield / 2 = 12.5%/2 =	6.25%
Number of remaining coupon payments till maturity = N = 25 years x 2 = 50 =	50
PV or Price of Bond = (C x F x ((1-((1+R)^-N)) / R) + (F/(1+R)^N)
Price of the bond =4.5%*1000*(1-(1+6.25%)^-50)/6.25%+1000/(1+6.25%)^50
Price of the> New bond =	$733.51