Exodus Limousine Company has $1,000 par value bonds outstanding at 17 percent in

Question

Exodus Limousine Company has $1,000 par value bonds outstanding at 17 percent interest. The bonds will mature in 40 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.)
Bond Price
a. 5 percent $
b. 6 percent $

Explanation / Answer

1 Par value (FV) $                                          1,000 2 Coupon rate 17.00% 3 Number of compounding periods per year 1 4 = 1*2/3 Interest per period (PMT) $                                       170.00 5 Number of years to maturity 40 6 = 3*5 Number of compounding periods till maturity (NPER) 40 7 Market rate of return/Required rate of return 5.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 5.00% Bond price at 5% YTM PV(RATE,NPER,PMT,FV)*-1 Bond price at 5% YTM $                                    3,059.09 1 Par value (FV) $                                          1,000 2 Coupon rate 17.00% 3 Number of compounding periods per year 1 4 = 1*2/3 Interest per period (PMT) $                                       170.00 5 Number of years to maturity 40 6 = 3*5 Number of compounding periods till maturity (NPER) 40 7 Market rate of return/Required rate of return 6.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 6.00% Bond price at 6% YTM PV(RATE,NPER,PMT,FV)*-1 Bond price at 6% YTM $                                    2,655.09

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