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Bond prices

The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outstanding. Each bond pays interest semi-annually and carries an annual coupon rate of 7%. Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of:
a) the bonds with 3 years to maturity?
b) the bonds with 10 years to maturity?
c) Explain the relationship between the number of years until a bond matures and its price.

Solution Preview

The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outstanding.  Each bond pays interest semi-annually and carries an annual coupon rate of 7%.  Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of:

a) the bonds with 3 years to maturity?
b) the bonds with 10 years to maturity?
c) Explain the relationship between the number of years until a bond matures and its price.

a) the bonds with 3 years to maturity?

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 ...

Solution Summary

The solution calculates bond prices for bonds with the same coupon and required rate of return but with different years to maturity. The relationship between the number of years until a bond matures and its price is also explained.

$2.19