Question

Cox Media Corporation pays a coupon rate of 9 percent on debentures that are due in 15 years. The current yield to maturity on bonds of similar risk is 10 percent. The bonds are currently callable at $900. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. Use Appendix B and Appendix Dfor an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Find the market value of the bonds using semiannual analysis. (Ignore the call price in your answer. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

Price of the Bond:

b. Do you think the bonds will sell for the price you arrived at in part a?
Yes

No

Answer 1

a.

Market price of the bond ignoring call value:

Market price of bond = $923.14

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate or yield / frequency of coupon in a year =	5.00
PMT = Payment = Coupon / frequency of coupon =	-$45.00
N = Total number of periods = Years x frequency of coupon =	30
FV = Future Value =	-$1,000.00
CPT > PV = Bond Value =	$923.14

b.

Correct option is > Yes

Considering call price at $900, it is better to sell bond today at calculated market price $923.14