Explore BrainMass

# Price of Bonds

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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

#### 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.

\$2.49