Question

Exodus Limousine Company has $1,000 par value bonds outstanding at 18 percent interest. The bonds will mature in 40 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Compute the current price of the bonds if the percent yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)

		Bond Price
a.	6 percent	?
b.	10 percent	?

Answer 1

a

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =40

Bond Price =∑ [(18*1000/100)/(1 + 6/100)^k]     +   1000/(1 + 6/100)^40

k=1

Bond Price = 2805.56

b

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =40

Bond Price =∑ [(18*1000/100)/(1 + 10/100)^k]     +   1000/(1 + 10/100)^40

k=1

Bond Price = 1782.32