The Lone Star Company has $1,000 par value bonds outstanding at 9 percent intere

Question

The Lone Star Company has $1,000 par value bonds outstanding at 9 percent interest. The bonds will mature in 18 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 present yield to maturity is. (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)

a. 7 percent   $______

b. 8 percent   $______

c. 13 percent $______

Explanation / Answer

a)

b)

c)

1 Face value (FV) $                                         1,000 2 Coupon rate 9.00% 3 Number of compounding periods per year 1 4 = 1*2/3 Interest per period (PMT) $                                         90.00 5 Number of years to maturity 18 6 = 3*5 Number of compounding periods till maturity (NPER) 18 7 Market rate of return/Required rate of return 7.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 7.00% Bond price PV(RATE,NPER,PMT,FV)*-1 Bond price $                                   1,201.18

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