Chapter_10_-_Moodle_Ready - Chapter 10(For the first 5 bond...

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Chapter 10 (For the first 5 bond problems, assume interest payments are on an annual basis.) 10-A. 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. 10-A. Solution: a. 7 percent yield to maturity Present Value of Interest Payments PV A = A × PV IFA (n = 25, i = 7%) Appendix D PV A = \$80 × 11.654 = \$932.32 Present Value of Principal Payment at Maturity PV = FV × PV IF (n = 25, i = 7%) Appendix B PV = \$1,000 × .184 = \$184 Total Present Value Present Value of Interest Payments \$ 932.32 Present Value of Principal Payments 184.00 Total Present Value or Price of the Bond \$1,116.32 b. 10 percent yield to maturity PV A = A × PV IFA (n = 25, i = 10%) Appendix D PV A = \$80 × 9.077 = \$726.16 PV = FV × PV IF (n = 25, i = 10%) Appendix B PV = \$1,000 × .092 = \$92 \$726.16 92.00 \$818.16 S10-1

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10-A. (Continued) c. 13 percent yield to maturity PV A = A × PV IFA (n = 25, i = 13%) Appendix D PV A = \$80 × 7.330 = \$586.40 PV = FV × PV IF (n = 25, i = 13%) Appendix B PV = \$1,000 × .047 = \$47 \$586.40 47.00 \$633.40 S10-2
10-B. Exodus Limousine Company has \$1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Compute the current price of the bonds if the percent yield to maturity is: a . 5 percent. b . 15 percent. 10-B. Solution: Exodus Limousine Company a. 5 percent yield to maturity Present Value of Interest Payments PV A = A × PV IFA (n = 50, i = 5%) Appendix D PV A = \$100 × 18.256 = \$1,825.60 Present Value of Principal Payment PV = FV × PV IF (n = 50, i = 5%) Appendix B PV = \$1,000 × .087 = \$87 Present Value of Interest Payment \$1,825.60 Present Value of Principal Payment 87.00 Total Present Value or Price of the Bond \$1,912.60 S10-3

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10-B. (Continued) b. 15 percent yield to maturity Present Value of Interest Payments PV A = A × PV IFA (n = 50, i = 15%) Appendix D PV A = \$1,000 × 6.661 = \$666.10 PV = FV × PV IF (n = 50, i = 15%) Appendix B PV = \$1,000 × .001 = \$1 Present Value of Interest Payment \$666.10 Present Value of Principal Payment 1.00 Total Present Value or Price of the Bond \$667.10 S10-4
10-C. Kilgore Natural Gas has a \$1,000 par value bond outstanding that pays 9 percent

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This note was uploaded on 07/03/2011 for the course BUS 320 taught by Professor Sloan during the Summer '08 term at N.C. State.

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Chapter_10_-_Moodle_Ready - Chapter 10(For the first 5 bond...

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