Question
You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores....
You are called in as a financial analyst to appraise the bonds
of Olsen’s Clothing Stores. The $1,000 par value bonds have a
quoted annual interest rate of 11 percent, which is paid
semiannually. The yield to maturity on the bonds is 12 percent
annual interest. There are 10 years to maturity. Use Appendix B and
Appendix D for an approximate answer but calculate your final
answer using the formula and financial calculator methods.
a. Compute the price of the bonds based on
semiannual analysis. (Do not round intermediate
calculations. Round your final answer to 2 decimal
places.)
b. With 5 years to maturity, if yield to maturity
goes down substantially to 10 percent, what will be the new price
of the bonds? (Do not round intermediate calculations.
Round your final answer to 2 decimal places.)
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