Madsen Motors's bonds have 13 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the...

Question

Question

Madsen Motorss bonds have 13 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupo

Answer 1

Answer #1

Annual coupon=1000*7%=70

Hence current price=Annual coupon*Present value of annuity factor(8%,13)+$1000*Present value of discounting factor(8%,13)

=70*7.90377594+$1000*0.367697925

=$920.96(Approx).

NOTE:

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

=70[1-(1.08)^-13]/0.08

=70*7.90377594

2.Present value of discounting factor=1000/1.08^13

=$1000*0.367697925

Answer 2

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