Question

On January 1, 2017, Manatee Corporation purchased 1,000 of the $1,000 par value, 6%, 20-year bonds of Fishes Inc. The bonds mature on January 1, 2037, and pay interest annually beginning January 1, 2018. Manatee purchased the bonds to yield 8%. How much did Manatee pay for the bonds?

Answer 1

Answer is 803. 64 per bond(Total 803.64*1000=803640

Value of bond
P= C /k *
[ 1 - [ 1 ] ] ( 1 + i /k )nk
i /k +
P
( 1 + i /k )nk

Where,

C = coupon payment
n = number of years
i =required return
k = number of coupon payments in 1 year
P = value at maturity, or par value

= 60 /1 *
[ 1 - [ 1 ] ] ( 1 + 0 . 0800/ 1)^ 20 *1
0 .0800 /1
+( 1000
/( 1 + 0 . 0800/1 ) ^20 *1)

= 60 . 00 *
[ 1 - [ 1 ] ] ( 1 + 0 . 0800) ^20
/0 .0800 +
(1000
/( 1 + 0 . 0800)^ 20)

= 60 . 00 * 1 - 0 . 2145
0. 0800 + 1000
4. 661

= 60 . 00 * 0. 7855
0. 0800 + 214. 55
= 60 . 00 * 9. 82 + 214. 55
= 589.09 + 214.55
= $803. 64