Question

eBook H Problem Walk-Through Madsen Motors's bonds have 17 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon Interest rate is 6%, and the yield to maturity is 9%. What is the bond's current market price? Round your answer to the nearest cent.

Answer 1

Hi

Bond price is the present discounted value of future cash stream generated by a bond. It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity. To calculate the bond price, one has to simply discount the known future cash flows.

] [1 Where Bo-Bond Price C-Coupon Payment r - Interest Rate F. Face Value 1-Years/Periods

Answer - $743.69

17 $1,000.00 Years Face Value Coupon Yield 6% 9% 2 6 Year Cash Flows PV Factor 1 $60.00 0.917 $60.00 0.842 3 $60.00 0.772 $60.00 0.708 $60.00 0.650 $60.00 0.596 7 $60.00 0.547 $60.00 0.502 $60.00 0.460 $60.00 0.422 $60.00 0.388 $60.00 0.356 19 13 $60.00 0.326 20 14 $60.00 0.299 21 15 $60.00 0.275 16 $60.00 0.252 23 17 $1,000.00 0.231 Current Market Price Present Value $55.05 $50.50 $46.33 $42.51 $39.00 $35.78 $32.82 $30.11 $27.63 $25.34 $23.25 $21.33 $19.57 $17.95 $16.47 $15.11 $244.94 $743.69 10

With formulae-

B Years Face Value Coupon Yield 17 1000 0.06 0.09 6 Year Cash Flows 7 1 =C2*C3 8 =A7+1 =B7 9 =A8+1 =B8 10 =A9+1 =B9 11 =A10+1 =B10 12 =A11+1 =B11 13 =A12+1 =B12 14 =A13+1 =B13 15 =A14+1 =B14 16 =A15+1 =B15 17 = 16+1 =B16 18 =A17+1 =B17 19 =A18+1 =B18 20 =A19+1 =B19 21 =A20+1 =B20 22 =A21+1 =B21 23 =A22+1 =B22+C2 24 Current Market Price PV Factor Present Value =1/(1+$C$4) A7 =B7*C7 =1/(1+$C$4)^A8 =B8*C8 =1/(1+$C$4)^A9 =B9*C9 =1/(1+$C$4)A10 =B10*c10 =1/(1+$C$4) A11 =B11*c11 =1/(1+$C$4) "A12 =B12*C12 =1/(1+$C$4) "A13 =B13*C13 =1/(1+$C$4)^14 =B14*C14 =1/(1+$C$4)^A15 =B15*C15 =1/(1+$C$4)^A16 =B16*C16 =1/(1+$C$4)^A17 =B17*C17 =1/(1+$C$4)^A18 =B18*C18 =1/(1+$C$4)^A19 =B19*C19 =1/(1+$C$4) A20 =B20*C20 =1/(1+$C$4)^A21 =B21*C21 =1/(1+$C$4) A22 =B22*C22 =1/(1+$C$4) A23 =B23*C23 =SUM(D7:D23)