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Hue company had $300,000,000 of debt outstanding at Face Value. The bonds have annual 2% coupon...

Hue company had $300,000,000 of debt outstanding at Face Value. The bonds have annual 2% coupon payments and a remaining life of 8 years to maturity. The bonds just got re-rated and the market determined yield to maturity changed from 5% to 3%. By what amount did the market value of the bond change?

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Expert Solution

Coupon = Face Value*Coupon Rate = 300000000*2% = 6000000

5.00% 3.00%
Period Cash
Flow		 Discounting Factor
[1/(1.05^year)]		 PV of Cash Flows
(cash flows*discounting factor)		 Discounting Factor
[1/(1.03^year)]		 PV of Cash Flows
(cash flows*discounting factor)
1 6000000 0.952380952 5714285.714 0.970873786 5825242.718
2 6000000 0.907029478 5442176.871 0.942595909 5655575.455
3 6000000 0.863837599 5183025.591 0.915141659 5490849.956
4 6000000 0.822702475 4936214.849 0.888487048 5330922.287
5 6000000 0.783526166 4701156.999 0.862608784 5175652.706
6 6000000 0.746215397 4477292.38 0.837484257 5024905.54
7 6000000 0.71068133 4264087.981 0.813091511 4878549.068
8 6000000 0.676839362 4061036.172 0.789409234 4736455.406
8 300000000 0.676839362 203051808.6 0.789409234 236822770.3
Price of the Bond =
Sum of PVs		 241831085.2 Price of the Bond =
Sum of PVs		 278940923.4
Change in Market Value =
[278940923.4-241831085.2]		 37109838.27 = $37109838.27

jeff jeffy answered 2 years ago
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