Jallouk Corporation has two different bonds currently outstanding. Bond M has a
ID: 2766537 • Letter: J
Question
Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $50,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,100 every six months over the subsequent eight years, and finally pays $2,400 every six months over the last six years. Bond N also has a face value of $50,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 10 percent compounded semiannually. What is the current price of bond M and bond N?
Explanation / Answer
Answer:
Current Price of Bond M = $25,202
Current Price of Bond N = $7,102
Here is the calculation for the same:
Year
Bond M
Bond N
Cash Flow
PV factor @ 5% (Semi annually)
Present Value
(Cash Flow x PV factor)
Cash Flow
Present Value
(Cash Flow x PV factor)
1
$0
0.952
$0.00
$0
$0
2
$0
0.907
$0.00
$0
$0
3
$0
0.864
$0.00
$0
$0
4
$0
0.823
$0.00
$0
$0
5
$0
0.784
$0.00
$0
$0
6
$0
0.746
$0.00
$0
$0
7
$0
0.711
$0.00
$0
$0
8
$0
0.677
$0.00
$0
$0
9
$0
0.645
$0.00
$0
$0
10
$0
0.614
$0.00
$0
$0
11
$0
0.585
$0.00
$0
$0
12
$0
0.557
$0.00
$0
$0
13
$2,100
0.530
$1,113.67
$0
$0
14
$2,100
0.505
$1,060.64
$0
$0
15
$2,100
0.481
$1,010.14
$0
$0
16
$2,100
0.458
$962.03
$0
$0
17
$2,100
0.436
$916.22
$0
$0
18
$2,100
0.416
$872.59
$0
$0
19
$2,100
0.396
$831.04
$0
$0
20
$2,100
0.377
$791.47
$0
$0
21
$2,100
0.359
$753.78
$0
$0
22
$2,100
0.342
$717.88
$0
$0
23
$2,100
0.326
$683.70
$0
$0
24
$2,100
0.310
$651.14
$0
$0
25
$2,100
0.295
$620.14
$0
$0
26
$2,100
0.281
$590.61
$0
$0
27
$2,100
0.268
$562.48
$0
$0
28
$2,100
0.255
$535.70
$0
$0
29
$2,400
0.243
$583.07
$0
$0
30
$2,400
0.231
$555.31
$0
$0
31
$2,400
0.220
$528.86
$0
$0
32
$2,400
0.210
$503.68
$0
$0
33
$2,400
0.200
$479.69
$0
$0
34
$2,400
0.190
$456.85
$0
$0
35
$2,400
0.181
$435.10
$0
$0
36
$2,400
0.173
$414.38
$0
$0
37
$2,400
0.164
$394.65
$0
$0
38
$2,400
0.157
$375.85
$0
$0
39
$2,400
0.149
$357.96
$0
$0
40
$2,400
0.142
$340.91
$50,000
$7,102
40
$50,000
0.142
$7,102.28
Current Price of Bond
$25,202
$7,102
Year
Bond M
Bond N
Cash Flow
PV factor @ 5% (Semi annually)
Present Value
(Cash Flow x PV factor)
Cash Flow
Present Value
(Cash Flow x PV factor)
1
$0
0.952
$0.00
$0
$0
2
$0
0.907
$0.00
$0
$0
3
$0
0.864
$0.00
$0
$0
4
$0
0.823
$0.00
$0
$0
5
$0
0.784
$0.00
$0
$0
6
$0
0.746
$0.00
$0
$0
7
$0
0.711
$0.00
$0
$0
8
$0
0.677
$0.00
$0
$0
9
$0
0.645
$0.00
$0
$0
10
$0
0.614
$0.00
$0
$0
11
$0
0.585
$0.00
$0
$0
12
$0
0.557
$0.00
$0
$0
13
$2,100
0.530
$1,113.67
$0
$0
14
$2,100
0.505
$1,060.64
$0
$0
15
$2,100
0.481
$1,010.14
$0
$0
16
$2,100
0.458
$962.03
$0
$0
17
$2,100
0.436
$916.22
$0
$0
18
$2,100
0.416
$872.59
$0
$0
19
$2,100
0.396
$831.04
$0
$0
20
$2,100
0.377
$791.47
$0
$0
21
$2,100
0.359
$753.78
$0
$0
22
$2,100
0.342
$717.88
$0
$0
23
$2,100
0.326
$683.70
$0
$0
24
$2,100
0.310
$651.14
$0
$0
25
$2,100
0.295
$620.14
$0
$0
26
$2,100
0.281
$590.61
$0
$0
27
$2,100
0.268
$562.48
$0
$0
28
$2,100
0.255
$535.70
$0
$0
29
$2,400
0.243
$583.07
$0
$0
30
$2,400
0.231
$555.31
$0
$0
31
$2,400
0.220
$528.86
$0
$0
32
$2,400
0.210
$503.68
$0
$0
33
$2,400
0.200
$479.69
$0
$0
34
$2,400
0.190
$456.85
$0
$0
35
$2,400
0.181
$435.10
$0
$0
36
$2,400
0.173
$414.38
$0
$0
37
$2,400
0.164
$394.65
$0
$0
38
$2,400
0.157
$375.85
$0
$0
39
$2,400
0.149
$357.96
$0
$0
40
$2,400
0.142
$340.91
$50,000
$7,102
40
$50,000
0.142
$7,102.28
Current Price of Bond
$25,202
$7,102
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