# Price of Bonds

Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:

a. 7 percent

b. 10 percent

c. 13 percent

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#### Solution Preview

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) 7%

Price of bond

Coupon rate= 8.000%

Face value= $1,000

Interest payment per year= $80.00 =8.% x 1000

Frequency= S Semi Annual

No of years to maturity= 25

No of Periods=n= 50 =2x25

Discount rate annually= 7.00%

Discount rate per period=r= 3.50% =7.%/2 Semi Annual

Price ...

#### Solution Summary

The solution calculates the price of bonds for different yields to maturity.