Question

Bond Valuation with Annual Payments Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a yield to maturity of 5%, what is the current market price of these bonds? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Annual coupon=$1000*9%=$90

Hence current market price=Annual coupon*Present value of annuity factor(5%,12)+$1000*Present value of discounting factor(5%,12)

=$90*8.863251636+$1000*0.556837418

which is equal to

=$1354.53(Approx).

NOTE:

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

=$90[1-(1.05)^-12]/0.05

=$90*8.863251636

2.Present value of discounting factor=$1000/1.05^12

=$1000*0.556837418