Question
In: Accounting
Exodus Limousine Company has $1,000 par value bonds outstanding at 12 percent interest. The bonds will...
Exodus Limousine Company has $1,000 par value bonds outstanding
at 12 percent interest. The bonds will mature in 50 years. Use
Appendix B and Appendix D for an approximate answer but 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: (Do not round intermediate calculations. Round
your final answers to 2 decimal places. Assume interest payments
are annual.)
|
Solutions
Expert Solution
|
Case 1 |
|
Calculation of Present Value of Interest Payments |
|
Interest Amount = 1000*12% = 120 |
|
Present Value = 120*PVIFA (n = 50, i = 6%) |
|
Present Value = 120*15.7619 |
|
Present Value of interest Payments = 1891.428 |
|
Calculation of Present Value of Principal Payment |
|
Principal Amount = 1000 |
|
Present Value = 1000*PVFA (n = 50, i = 6%) |
|
Present Value = 1000*0.05429 |
|
Present Value of Principal Payment = 54.29 |
|
Current Price of the Bond = Present Value of Interest Payment + Present Value of Principal Payments |
|
Current Price of the Bond = 1891.428 + 54.29 |
|
Current Price of the Bond = 1945.72 |
|
Case 2 |
|
Calculation of Present Value of Interest Payments |
|
Interest Amount = 1000*12% = 120 |
|
Present Value = 120*PVIFA (n = 50, i = 10%) |
|
Present Value = 120*9.9148 |
|
Present Value of interest Payments = 1189.776 |
|
Calculation of Present Value of Principal Payment |
|
Principal Amount = 1000 |
|
Present Value = 1000*PVFA (n = 50, i = 10%) |
|
Present Value = 1000*0.00852 |
|
Present Value of Principal Payment = 8.52 |
|
Current Price of the Bond = Present Value of Interest Payment + Present Value of Principal Payments |
|
Current Price of the Bond = 1189.776+8.52 |
|
Current Price of the Bond = 1198.30 |
ekkarill92 answered 2 years agoRelated Solutions
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