Exodus Limousine Company has $1,000 par value bonds outstanding at 12 percent in
ID: 2609909 • Letter: E
Question
Exodus Limousine Company has $1,000 par value bonds outstanding at 12 percent interest. The bonds will mature in 50 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 current price of the bonds if the percent yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)
Explanation / Answer
Case 1
Calculation of Present Value of Interest Payments
Interest Amount = 1000*12% = 120
Present Value = 120*PVIFA (n = 50, i = 6%)
Present Value = 120*15.7619
Present Value of interest Payments = 1891.428
Calculation of Present Value of Principal Payment
Principal Amount = 1000
Present Value = 1000*PVFA (n = 50, i = 6%)
Present Value = 1000*0.05429
Present Value of Principal Payment = 54.29
Current Price of the Bond = Present Value of Interest Payment + Present Value of Principal Payments
Current Price of the Bond = 1891.428 + 54.29
Current Price of the Bond = 1945.72
Case 2
Calculation of Present Value of Interest Payments
Interest Amount = 1000*12% = 120
Present Value = 120*PVIFA (n = 50, i = 10%)
Present Value = 120*9.9148
Present Value of interest Payments = 1189.776
Calculation of Present Value of Principal Payment
Principal Amount = 1000
Present Value = 1000*PVFA (n = 50, i = 10%)
Present Value = 1000*0.00852
Present Value of Principal Payment = 8.52
Current Price of the Bond = Present Value of Interest Payment + Present Value of Principal Payments
Current Price of the Bond = 1189.776+8.52
Current Price of the Bond = 1198.30
Case 1
Calculation of Present Value of Interest Payments
Interest Amount = 1000*12% = 120
Present Value = 120*PVIFA (n = 50, i = 6%)
Present Value = 120*15.7619
Present Value of interest Payments = 1891.428
Calculation of Present Value of Principal Payment
Principal Amount = 1000
Present Value = 1000*PVFA (n = 50, i = 6%)
Present Value = 1000*0.05429
Present Value of Principal Payment = 54.29
Current Price of the Bond = Present Value of Interest Payment + Present Value of Principal Payments
Current Price of the Bond = 1891.428 + 54.29
Current Price of the Bond = 1945.72
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