Midland Oil has $1,000 par value bonds outstanding at 8 ...



Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:

A. 7 percent.

B. 10 percent.

C. 13 percent

The Price of a bond is actually the sum of the PV of all future cash flows (PV of coupon payments plus PV of Face Value)

Coupon Payment = $1,000 × 8% = $80

A) YTM = 7%

Price = [pic]

[pic]Price [pic]

= ($80 × 11.6536) + ($1,000 × 0.184249)

= $932.29 + $184.25

= $1,116.54

B) YTM = 10%

For a Discount Rate of 10% and number of periods = 25

PVannuity = 9.0770

PVamount = 0.0923

Price of bond = ($80 × 9.0770) + ($1,000 × 0.0923)

= $818.46

C) YTM = 13%

Please see the attached excel sheet

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download