Question

Youngblood Inc. issued 12% bonds 10 years ago to finance a plant expansion. These bonds mature 4 years from today and are priced to yield 8%. Find the intrinsic value of these bonds. Round intermediate steps to four decimals and your final answer to two decimals. Do not use the dollar sign when entering your response.

Answer #1

**Bond Valuation:** The value of bond is the
present value of the expected cashflows from the bond,discounted at
Yield to Maturity(YTM).

Year |
Cash flow |
PVAF/[email protected]% |
Present Value (Cashflow*PVAF/PVF) |

1-4 | 120 | 3.3121* | 397.45 |

4 | 1000 | 0.7350** | 735.00 |

**Intrinsic Value of Bonds =
Cashflow*PVAF/PVF**

**=** 397.45+735

= **1132.45**

*PVAF = (1-(1+r)^-n)/r

**PVF = 1 / (1+r)^n

**Note:** It is general practice to take $1,000 as
face value when no details are given.

Annual compounding is assumed.

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