Question

1. Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has been allowed to reorganize their debt structure with a consolidated new deferral bond issue with more favorable terms. The new issue will be a 40- year, 12% coupon rate bond with semiannual coupons. However, under the bond indenture, the company is relieved of making interest payments (deferred interest) for the first 10 years. For the remaining 30 years, the regular interest payments would resume. The reorganization calls for the deferred interest to be paid in 3 equal installments: one payment occurring at the end of year 20, one at the end of year 25, and one at maturity.

   Calculate the value of a new $1,000 par value bond assuming a yield to maturity of 7%.

How do you calculate the answer using a financial calculator?

Answer 1

Price of the bond = ΣDiscounted cashflow = $1,014.18

Period refers to 6months

Period	Type	Cashflow	PVF @ 3.5%	Discounted cashflow (Cashflow*[email protected]%)
21.0	Coupon	60	0.4856	29.14
22.0	Coupon	60	0.4692	28.15
23.0	Coupon	60	0.4533	27.20
24.0	Coupon	60	0.4380	26.28
25.0	Coupon	60	0.4231	25.39
26.0	Coupon	60	0.4088	24.53
27.0	Coupon	60	0.3950	23.70
28.0	Coupon	60	0.3817	22.90
29.0	Coupon	60	0.3687	22.12
30.0	Coupon	60	0.3563	21.38
31.0	Coupon	60	0.3442	20.65
32.0	Coupon	60	0.3326	19.96
33.0	Coupon	60	0.3213	19.28
34.0	Coupon	60	0.3105	18.63
35.0	Coupon	60	0.3000	18.00
36.0	Coupon	60	0.2898	17.39
37.0	Coupon	60	0.2800	16.80
38.0	Coupon	60	0.2706	16.24
39.0	Coupon	60	0.2614	15.68
40.0	Coupon	60	0.2526	15.16
40.0	One third of first 10 years coupon	400	0.2526	101.04
41.0	Coupon	60	0.2440	14.64
42.0	Coupon	60	0.2358	14.15
43.0	Coupon	60	0.2278	13.67
44.0	Coupon	60	0.2201	13.21
45.0	Coupon	60	0.2127	12.76
46.0	Coupon	60	0.2055	12.33
47.0	Coupon	60	0.1985	11.91
48.0	Coupon	60	0.1918	11.51
49.0	Coupon	60	0.1853	11.12
50.0	Coupon	60	0.1791	10.75
50.0	One third of first 10 years coupon	400	0.1791	71.64
51.0	Coupon	60	0.1730	10.38
52.0	Coupon	60	0.1671	10.03
53.0	Coupon	60	0.1615	9.69
54.0	Coupon	60	0.1560	9.36
55.0	Coupon	60	0.1508	9.05
56.0	Coupon	60	0.1457	8.74
57.0	Coupon	60	0.1407	8.44
58.0	Coupon	60	0.1360	8.16
59.0	Coupon	60	0.1314	7.88
60.0	Coupon	60	0.1269	7.61
61.0	Coupon	60	0.1226	7.36
62.0	Coupon	60	0.1185	7.11
63.0	Coupon	60	0.1145	6.87
64.0	Coupon	60	0.1106	6.64
65.0	Coupon	60	0.1069	6.41
66.0	Coupon	60	0.1033	6.20
67.0	Coupon	60	0.0998	&n jeff jeffy Next > < Previous Related Solutions Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has... Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has been allowed to reorganize their debt structure with a consolidated new deferral bond issue with more favorable terms. The new issue will be a 40- year, 12% coupon rate bond with semiannual coupons. However, under the bond indenture, the company is relieved of making interest payments (deferred interest) for the first 10 years. For the remaining 30 years, the regular interest payments would resume.... Firm A, under Chapter 11 bankruptcy proceedings, has an estimated going-concern reorganization value of $3.0 million.... Firm A, under Chapter 11 bankruptcy proceedings, has an estimated going-concern reorganization value of $3.0 million. 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