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Calculate: Bond Price

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Question: 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:

a. 7 percent
b. 10 percent
c. 13 percent

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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:

a. 7 percent
b. 10 percent
c. 13 percent

Solution:
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 ...

Solution Summary

This solution illustrates how to calculate bond price for different yields to maturity. All calculations are included.

$2.19
Similar Posting

Find the bond values and yields in the given cases.

Problem 1
Suppose a corporation's bonds have 8 years remaining to maturity. In addition, suppose the bonds have a $1000 face value, and the coupon interest rate is 7%. The bonds have a yield to maturity of 10%. Complete parts (a) and (b) below.
a) Compute the market price of the bonds if interest is paid annually.
b) Compute the market price of the bonds if interest is paid semiannually.

Problem 2
Suppose a corporation's bonds have a current market price of $1400. The bonds have a 13% annual coupon rate, a $1000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 107% of face value. Complete parts (a) through (c) below.
a) Compute the bonds' current yield.
b) Compute the yield to maturity.
c) Find the yield to call, if the bonds are called in 5 years.

Problem 3
A company has a bond issue outstanding that pays $150 annual interest plus $1000 at maturity. The bond has a maturity of 10 years. Compute the value of the bond when the interest rate is 5%, 9%, and 13%. Describe the pattern and the type of risk that may apply.

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