BOND VALUATION Madsen Motors's bonds have 12 years remaining to maturity. Interest is paid annually; they...

Question

Question

BOND VALUATION Madsen Motorss bonds have 12 years remaining to maturity. Interest is paid annually; they have a $1,000 par v

Answer 1

Answer #1

Annual coupon=1000*9%=90

Hence current price=Annual coupon*Present value of annuity factor(10%,12)+1000*Present value of discounting factor(10%,12)

=90*6.81369182+1000*0.318630818

=$931.86(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=90[1-(1.1)^-12]/0.1

=90*6.81369182

2.Present value of discounting factor=1000/1.1^12

=1000*0.318630818

Answer 2

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