Question

The Wild Rose Company has $1000 par value (maturity value) bonds outstanding at 9% interest. The bonds will mature in 10 years with annual payments.

Compute the current price of the bonds if the present yield to maturity is:

6 percent

8 percent

12 percent

Answer 1

		6%
Period	Cash Flow	Discounting Factor [1/(1.06^year)]	PV of Cash Flows (cash flows*discounting factor)
1	90	0.943396226	84.90566038
2	90	0.88999644	80.0996796
3	90	0.839619283	75.56573547
4	90	0.792093663	71.28842969
5	90	0.747258173	67.25323556
6	90	0.70496054	63.44644864
7	90	0.665057114	59.85514023
8	90	0.627412371	56.46711342
9	90	0.591898464	53.27086172
10	90	0.558394777	50.25552992
10	1000	0.558394777	558.3947769
		Price of the Bond = Sum of PVs	1220.802612

		8%
Period	Cash Flow	Discounting Factor [1/(1.08^year)]	PV of Cash Flows (cash flows*discounting factor)
1	90	0.925925926	83.33333333
2	90	0.85733882	77.16049383
3	90	0.793832241	71.44490169
4	90	0.735029853	66.15268675
5	90	0.680583197	61.25248773
6	90	0.630169627	56.71526642
7	90	0.583490395	52.51413557
8	90	0.540268885	48.62419961
9	90	0.500248967	45.02240704
10	90	0.463193488	41.68741393
10	1000	0.463193488	463.1934881
		Price of the Bond = Sum of PVs	1067.100814

		12%
Period	Cash Flow	Discounting Factor [1/(1.12^year)]	PV of Cash Flows (cash flows*discounting factor)
1	90	0.892857143	80.35714286
2	90	0.797193878	71.74744898
3	90	0.711780248	64.0602223
4	90	0.635518078	57.19662706
5	90	0.567426856	51.06841701
6	90	0.506631121	45.59680091
7	90	0.452349215	40.71142938
8	90	0.403883228	36.34949052
9	90	0.360610025	32.45490225
10	90	0.321973237	28.97759129
10	1000	0.321973237	321.9732366
		Price of the Bond = Sum of PVs	830.4933091