Question

Madsen Motors's bonds have 19 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8.5%; and the yield to maturity is 12%. What is the bond's current market price? Round your answer to the nearest cent.

Answer 1

Calculation of price of bond:
Particulars	Time	PVf @12%	Amount	PV
Cash Flows (Interest)	1.00	0.8929	85.00	75.89
Cash Flows (Interest)	2.00	0.7972	85.00	67.76
Cash Flows (Interest)	3.00	0.7118	85.00	60.50
Cash Flows (Interest)	4.00	0.6355	85.00	54.02
Cash Flows (Interest)	5.00	0.5674	85.00	48.23
Cash Flows (Interest)	6.00	0.5066	85.00	43.06
Cash Flows (Interest)	7.00	0.4523	85.00	38.45
Cash Flows (Interest)	8.00	0.4039	85.00	34.33
Cash Flows (Interest)	9.00	0.3606	85.00	30.65
Cash Flows (Interest)	10.00	0.3220	85.00	27.37
Cash Flows (Interest)	11.00	0.2875	85.00	24.44
Cash Flows (Interest)	12.00	0.2567	85.00	21.82
Cash Flows (Interest)	13.00	0.2292	85.00	19.48
Cash Flows (Interest)	14.00	0.2046	85.00	17.39
Cash Flows (Interest)	15.00	0.1827	85.00	15.53
Cash Flows (Interest)	16.00	0.1631	85.00	13.87
Cash Flows (Interest)	17.00	0.1456	85.00	12.38
Cash Flows (Interest)	18.00	0.1300	85.00	11.05
Cash Flows (Interest)	19.00	0.1161	85.00	9.87
Cash flows (Maturity Amount)	19.00	0.1161	1,000.00	116.10
Fair Price				742.19
Price of bond is $742.19