Question

In: Finance

A company currently offer $1,000 par value bonds that pay 9% interest. The current yield to...

A company currently offer $1,000 par value bonds that pay 9% interest. The current yield to maturity is 12%. What is the current price of the bonds if some mature in 5 years and some mature in 10 years?

Show work please

Solutions

Expert Solution

Current Price of the Bond if the Maturity Period is 5 Years

Par Value of the bond = $1,000

Annual Coupon Amount = $90 [$1,000 x 9%]

Yield to Maturity = 12%

Maturity Period = 5 Years

Current Price of the Bond = Present Value of the Coupon Payments + Present Value of the Face Value

= $90[PVIFA 12%, 5 Years] + $1,000[PVIF 12%, 5 Years]

= [$90 x 3.60478] + [$1,000 x 0.56743]

= $324.43 + $567.43

= $891.86

“Current Price of the Bond for 5 years maturity period would be $891.86”

Current Price of the Bond if the Maturity Period is 10 Years

Par Value of the bond = $1,000

Annual Coupon Amount = $90 [$1,000 x 9%]

Yield to Maturity = 12%

Maturity Period = 10 Years

Current Price of the Bond = Present Value of the Coupon Payments + Present Value of the Face Value

= $90[PVIFA 12%, 10 Years] + $1,000[PVIF 12%, 10 Years]

= [$90 x 5.65022] + [$1,000 x 0.32197]

= $508.52 + $321.97

= $830.49

“Current Price of the Bond for 10 years maturity period would be $830.49”

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)n} / r], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.

--The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is the Yield to Maturity of the Bond and “n” is the number of maturity periods of the Bond.


Related Solutions

ExxonMobil ​12 year bonds pay 9 percent interest annually on a ​$1,000 par value. If the...
ExxonMobil ​12 year bonds pay 9 percent interest annually on a ​$1,000 par value. If the bonds sell at $775 what is the​ bonds' expected rate of​ return? The​ bonds' expected rate of return is ?
The 8​-year ​$1,000 par bonds of Vail Inc. pay 9 percent interest. The​ market's required yield...
The 8​-year ​$1,000 par bonds of Vail Inc. pay 9 percent interest. The​ market's required yield to maturity on a​ comparable-risk bond is 13 percent. The current market price for the bond is $870. a.  Determine the yield to maturity. b.  What is the value of the bonds to you given the yield to maturity on a​ comparable-risk bond? c.  Should you purchase the bond at the current market​ price? a. What percent is your yield to maturity on the...
What is the current yield of a $1,000 par value bond that is currently selling for...
What is the current yield of a $1,000 par value bond that is currently selling for $1,362 if the annual coupon rate is 6.8% and the bond has 14 years to maturity?
Par value is $1,000. The bonds make semiannual payments and are currently selling at “106.” What is the bond’s current yield?
JK Corp has 4.8 percent coupon bonds on the market with 13 years to maturity. Par value is $1,000. The bonds make semiannual payments and are currently selling at “106.” What is the bond’s current yield?Further to question #24, what is the bond’s yield-to-maturity?
A firm’s bonds currently sell for $1,180 and have a par value of $1,000.  They pay a...
A firm’s bonds currently sell for $1,180 and have a par value of $1,000.  They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100.  What is their yield to call (YTC)?
The 11​-year, ​$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market...
The 11​-year, ​$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is ​$1,095​, and the​ market's required yield to maturity on a​ comparable-risk bond is 6 percent. a.  Compute the​ bond's yield to maturity. b.  Determine the value of the bond to you given the​ market's required yield to maturity on a​ comparable-risk bond. c.  Should you purchase the​ bond?
 ​Fingen's 13​-year, ​$1,000 par value bonds pay 9 percent interest annually. The market price of the...
 ​Fingen's 13​-year, ​$1,000 par value bonds pay 9 percent interest annually. The market price of the bonds is ​$850 and the​ market's required yield to maturity on a​ comparable-risk bond is 10 percent. a. Compute the​ bond's yield to maturity. b. Determine the value of the bond to​ you, given your required rate of return. c. Should you purchase the​ bond?
A company issued 9%, 15-year bonds with a par value of $560,000 that pay interest semiannually....
A company issued 9%, 15-year bonds with a par value of $560,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is: Multiple Choice Debit Bond Interest Expense $510,000; credit Cash $510,000. No entry is needed, since no interest is paid until the bond is due. Debit Bond Interest Expense $50,400; credit Cash $50,400. Debit Bond Interest Expense $25,200; credit Cash $25,200. Debit Bond Interest Payable...
A company issued 9%, 15-year bonds with a par value of $650,000 that pay interest semiannually....
A company issued 9%, 15-year bonds with a par value of $650,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is: Multiple Choice Debit Bond Interest Expense $29,250; credit Cash $29,250. Debit Bond Interest Payable $43,333; credit Cash $43,333. Debit Bond Interest Expense $600,000; credit Cash $600,000. No entry is needed, since no interest is paid until the bond is due. Debit Bond Interest Expense...
The FIN340 Company bonds are currently trading at 101% of par (Par Value is $1,000) with...
The FIN340 Company bonds are currently trading at 101% of par (Par Value is $1,000) with exactly 15 years remaining until maturity and a 5.6% coupon rate. The company's tax rate is 21%. What is the company's After-Tax Cost of Debt?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT