Question

the Lone Star Company has $1000 par value bonds
outstanding at 10 percent interest. the bonds will mature in 20
years. use appendix B and appendix D for an approximate answer but
calculate your final answer using the formula and financial
calculator methods.

compute the price of the bonds if the present yield to maturity is
7 percent, 9 percent, 12 percent.

Answer #1

n = 40 | ||||||

I = 3.5% | ||||||

Cashflows | Amount | PVF | Present value | |||

Semi annual interest | 50 | 21.35507 | 1067.754 | |||

Maturity value | 1000 | 0.252572 | 252.572 | |||

Price of bonds | 1320.326 | |||||

n = 40 | ||||||

I = 4.50% | ||||||

Cashflows | Amount | PVF | Present Values | |||

Semi annual interest | 50 | 18.40158 | 920.079 | |||

Maturity value | 1000 | 0.171929 | 171.929 | |||

Price of bonds | 1092.008 | |||||

n = 40 | ||||||

I = 6% | ||||||

Cashflows | Amount | PVF | Present Values | |||

Semi annual interest | 50 | 15.0463 | 752.315 | |||

Maturity value | 1000 | 0.097222 | 97.222 | |||

Price of bonds | 849.537 | |||||

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