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Ulta Inc. issued long-term debt with a remaining term of 28 years with semi-annual payments with...

Ulta Inc. issued long-term debt with a remaining term of 28 years with semi-annual payments with a coupon rate of 18%. Currently, these bonds have a price of $924. FV we can assume is $1,000, what is the PMT? Thank you.

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Answer #1

When a 28 year bond has a coupon rate of 18%, paid semi annually, we will have to convert the values in the question from annual to semi annual:

  • Duration = 28 * 2 = 56 Semi-Annuals
  • Coupon Rate = 18%/2 = 9% paid semi annually
  • PV of the bond = $924
  • FV of the bond = $1,000

PMT can be found out using excel (using the function PMT)

Hence, PMT = $83.10 in every 6 months = $166.2 annually.

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