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    Bond price

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    Burns Fire and Casualty Company has $1,000 par value bonds outstanding at 11 percent interest. The bonds will mature in 20 years. Compute t he current price of the bonds if the present yield to maturity is: a. 6 percent. b. 8 percent. c. 12 percent.

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    Solution Preview

    See attached file.

    Burns Fire and Casualty Company has $1,000 par value bonds outstanding at 11 percent interest. The bonds will mature in 20 years. Compute t he current price of the bonds if the present yield to maturity is: a. 6 percent. b. 8 percent. c. 12 percent.

    To calculate the price of the bond we need to calculate / read from tables the values of
    PVIF= Present Value Interest Factor
    PVIFA= Present Value Interest Factor for an Annuity
    Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

    PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
    PVIF( n, r%)= =1/(1+r%)^n

    a. 6 ...

    Solution Summary

    The bond price is calculated at different yields to maturity.

    $2.19

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