The Morgan Corporation has two different bonds currently outstanding. Bond M has

Question

The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $29,500 and matures in 21 years. The bond makes no payments for the first 6 years, then pays $1,800 every six months over the subsequent 9 years, and finally pays $2,300 every six months over the last 6 years. Bond N also has a face value of $29,500 and a maturity of 21 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 12 percent compounded semiannually.

Required: (a) What is the current price of Bond M? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))

(b) What is the current price of Bond N? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

(a) What is the current price of Bond M? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))

Price of Bond M at year 15 = pv(6%,12,2300,29500)

Price of Bond M at year 15 = $ 33,943.44

Price of Bond M at year 6 = pv(6%,18,1800,33943.44)

Price of Bond M at year 6 = $ 31,381.56

Current price of Bond M = 31381.56/1.06^12

Current price of Bond M = $ 15,595.67

(b) What is the current price of Bond N? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))

Current price of Bond N = 29500/1.06^42

Current price of Bond N = $ 2552.56

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