Question

Exodus Limousine Company has $1,000 par value bonds outstanding at 18 percent interest. The bonds will mature in 30 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

A) Compute the current price of the bonds if the percent yield to maturity is 7%

B) Compute the current price of the bonds if the percent yield to maturity is 11%

Answer 1

price of coupon = Coupon payment per period * [1-(1+i)^-n]/i + par value/(1+i)^n

i = interest rate per period

n = number of periods

=>

a)

Price = 180 * [1-(1+0.07)^-30]/0.07 + 1000/(1+0.07)^30

= 2365

b)

Price = 180 * [1-(1+0.11)^-30]/0.11 + 1000/(1+0.11)^30

= 1608.57