Jackson Corporation's bonds have 9 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 6%. The bonds have a yield to maturity of 7%. What is the current market price of these bonds? Do not round intermediate calculations. Round your answer to the nearest cent.
Maturity period = 9 years
Face Value or par value = $1,000 par value
Coupon interest rate = 6% paid annually
Interest = $1000*6% = $60
Yield to maturity (YTM) = 7%
Calculation of current market price of these bonds
B0= Present value of Interest + Present Value of Maturity of Bond
B0=
Interest *PVAF(YTM,T)+
Maturity Value*PVF(YTM,T)
where, YTM
= Yield to maturity
T = period
of maturity
B0= $60
*PVAF(7%,9)+
$1000*PVF(7%,9)
B0= $60 * 6.5152322 +
$1000* 0.5439337
B0= $60 *
6.5152322 + $1000*
0.5439337
Bo = $390.92 + 543.93
Bo = $934.85
Current market price of these bonds = $934.85
Note :
PVF(r,t) = (1/(1+r))^n
PVAF = (1/(1+r))^1 + (1/(1+r))^2 +...+(1/(1+r))^n
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