Question

Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 11.5%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? Round your answer to the nearest cent.

Answer 1

price of the bonds = [present value of annuity * interest payment] + [present value factor * par value]

now,

present value of annuity factor = [1-(1+r)^(-n)]/r

r=9%=>0.09

n=5 years

=>[1-(1.09)^(-5)]/0.09

=>0.3500686/0.09

=>3.88965111

interest payment =$1,000*11.5%=>$115.

present value factor = 1 /(1+r)^n

=>1/ (1.09)^5=>0.64993139

par value =$1,000

market price of the bond = [3.88965111*$115]+[0.64993139*1000]

=>447.3009878+649.93139

=>$1,097.24.