Question

Exodus Limousine Company has $1,000 par value bonds outstanding at 17 percent interest. The bonds will...

Exodus Limousine Company has $1,000 par value bonds outstanding at 17 percent interest. The bonds will mature in 50 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Compute the current price of the bonds if the percent yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)
  

Exodus Limousine Company has $1,000 par value bonds outstanding at 17 percent interest. The bonds will mature in 50 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Compute the current price of the bonds if the percent yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)
Please show step by step

Bond Price
A. 5%
B. 9%

Homework Answers

Answer #1

Value of Bind = PV of Cash Flows from it.

Value of Bond = [ Int per anum * PVAF(r%, n) ] + [ Maturity Value * PVF (r%, n ]

PVAF = sum of PVF (r%, n)

where r is YTM and n is No. of years.

Value of Bond if YTM is 5%:

Value of Bond = [ Int per anum * PVAF(r%, n) ] + [ Maturity Value * PVF (r%, n ]

= [ 170 * PVAF (5%, 50) ] + [ 1000 * PVF(5%, 50) ]

= [ 170 * 18.2559 ] + [ 1000* 0.0872 ]

= 3103.51 + 87.20

= 3190.71

Value of Bond if YTM is 9%:

Value of Bond = [ Int per anum * PVAF(r%, n) ] + [ Maturity Value * PVF (r%, n ]

= [ 170 * PVAF (9%, 50) ] + [ 1000 * PVF(9%, 50) ]

= [ 170 * 10.9617 ] + [ 1000* 0.0134 ]

= 1863.49 + 13.45

= 1876.94

PVAF, PVF are taken from PVAF table and PVF table respectively.

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