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The Wild Rose Company has $1,000 par value (maturity value) bonds outstanding at 10 percent interest....

The Wild Rose Company has $1,000 par value (maturity value) bonds outstanding at 10 percent interest. The bonds will mature in 18 years with annual payments. Use Appendix B and Appendix D. Compute the current price of the bonds if the present yield to maturity is: (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answers to 2 decimal places.)

a) 7 percent

b)9 percent

c)12 percent

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Answer #1

Par Value = $1,000

Annual Coupon Rate = 10.00%
Annual Coupon = 10.00% * $1,000
Annual Coupon = $100

Time to Maturity = 18 years

In yield to maturity is 7.00%:

Current Price = $100 * PVA of $1 (7.00%, 18) + $1,000 * PV of $1 (7.00%, 18)
Current Price = $100 * 10.059 + $1,000 * 0.296
Current Price = $1,301.90

In yield to maturity is 9.00%:

Current Price = $100 * PVA of $1 (9.00%, 18) + $1,000 * PV of $1 (9.00%, 18)
Current Price = $100 * 8.756 + $1,000 * 0.212
Current Price = $1,087.60

In yield to maturity is 12.00%:

Current Price = $100 * PVA of $1 (12.00%, 18) + $1,000 * PV of $1 (12.00%, 18)
Current Price = $100 * 7.250 + $1,000 * 0.130
Current Price = $855.00

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