Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bo
ID: 2718033 • Letter: M
Question
Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the present yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.) Bond Price a. 7 percent $ b. 10 percent $ c. 13 percent $ Problem
10-6 Bond value [LO3] Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 9 percent annual interest. The current yield to maturity on such bonds in the market is 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the price of the bonds for the following maturity dates: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.) Bond Price a. 30 years $ b. 15 years $ c. 1 year $
Explanation / Answer
Answer 1
At 7%
Current price of a Bond => 80 * pviaf, 7%, 25 +1000 * af 7% of 25th year
=> 80 * 11.65 + 1000 *0.182
=> $1116.54
At 10%
Current price of a Bond => 80 * pviaf, 10%, 25 +1000 * af 10% of 25th year
=> 80 * 9.077 + 1000 * 0.0922
=> $818.46
At 13%
Current price of a Bond => 80 * pviaf, 13%, 25 +1000 * af 13% of 25th year
=> 80 * 7.33 + 1000 * 0.0471
=> $633.50
Answer 2
A 30 years
Current price of a Bond => 90 * pviaf, 12%, 30 +1000 * af 12% of 30th year
=> 90 * 8.055 + 1000 * 0.0333
=> 758.34
At 15 years
Current price of a Bond => 90 * pviaf, 12%, 15 +1000 * af 12% of 15th year
=> 90 * 6.811 + 1000 * 0.1827
=> 795.67
At 1 year
Current price of a Bond => 90 * pviaf, 12%,1+1000 * af 12% of1 year
=> 90 * 0.893 +1000 * 0.893
=> 973.21