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Altidore Striker Incorporated has bonds that have a coupon rate of 6.50% and a face value...

Altidore Striker Incorporated has bonds that have a coupon rate of 6.50% and a face value of $1,000. Suppose that investors want a yield to maturity on Altidore bonds of 8.93%, regardless of the time until maturity.

a) What is the price of Altidore bonds if there is 10 years until maturity?

b)  What is the price of Altidore bonds if there is 20 years until maturity?

c) What is the price of Altidore bonds if there is 1 year until maturity?

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Answer #1

(a)- The price of Altidore bonds if there is 10 years until maturity

The Price of the Bond = Present Value of the Coupon payments + Present Value of Face Value

= $65[PVIFA 8.93%, 10 Years] + $1,000[PVIF 8.93%, 10 Years]

= [$65 x 6.43748] + [$1,000 x 0.42513]

= $418.44 + $425.13

= $843.57

(b)- The price of Altidore bonds if there is 20 years until maturity

The Price of the Bond = Present Value of the Coupon payments + Present Value of Face Value

= $65[PVIFA 8.93%, 20 Years] + $1,000[PVIF 8.93%, 20 Years]

= [$65 x 9.17426] + [$1,000 x 0.18074]

= $596.33 + $180.74

= $777.07

(c)- The price of Altidore bonds if there is 1 years until maturity

The Price of the Bond = Present Value of the Coupon payments + Present Value of Face Value

= $65[PVIFA 8.93%, 1 Year] + $1,000[PVIF 8.93%, 1 Year]

= [$65 x 0.91802] + [$1,000 x 0.91802]

= $59.67 + $918.02

= $977.69

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