The Morgan Corporation has two different bonds currently outstanding. Bond M has
ID: 2775239 • Letter: T
Question
The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 every six months over the subsequent eight years, and finally pays $1,000 every six months over the last six years. Bond N also has a face value of $30,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 8 percent compounded semiannually.
What is the current price of Bond M and Bond N? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 every six months over the subsequent eight years, and finally pays $1,000 every six months over the last six years. Bond N also has a face value of $30,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 8 percent compounded semiannually.
Explanation / Answer
PM = $800(PVIFA4%,16)(PVIF4%,12) + $1000(PVIFA4%,12)(PVIF4%,28) + $30,000 (PVIF4%,40) =15200.77 PN = $30,000 (PVIF4%,40) = 6248.67 Current price Bond M 15200.77 Bond N 6248.67 0 4% PV factor Cash flow PV 1 0.961538462 0 2 0.924556213 0 3 0.888996359 0 4 0.854804191 0 5 0.821927107 0 6 0.790314526 0 7 0.759917813 0 8 0.730690205 0 9 0.702586736 0 10 0.675564169 0 11 0.649580932 0 12 0.62459705 0 13 0.600574086 800 480.4593 14 0.577475083 800 461.9801 15 0.555264503 800 444.2116 16 0.533908176 800 427.1265 17 0.513373246 800 410.6986 18 0.493628121 800 394.9025 19 0.474642424 800 379.7139 20 0.456386946 800 365.1096 21 0.438833602 800 351.0669 22 0.421955387 800 337.5643 23 0.405726333 800 324.5811 24 0.390121474 800 312.0972 25 0.375116802 800 300.0934 26 0.360689233 800 288.5514 27 0.34681657 800 277.4533 28 0.333477471 800 266.782 29 0.320651415 1000 320.6514 30 0.308318668 1000 308.3187 31 0.296460258 1000 296.4603 32 0.28505794 1000 285.0579 33 0.274094173 1000 274.0942 34 0.26355209 1000 263.5521 35 0.253415471 1000 253.4155 36 0.243668722 1000 243.6687 37 0.234296848 1000 234.2968 38 0.225285431 1000 225.2854 39 0.216620606 1000 216.6206 39 0.208289045 31000 6456.96 Value of bond 15200.77