Cox Media Corporation pays a coupon rate of 8 percent on debentures that are due
ID: 2793067 • Letter: C
Question
Cox Media Corporation pays a coupon rate of 8 percent on debentures that are due in 10 years. The current yield to maturity on bonds of similar risk is 6 percent. The bonds are currently callable at $1,090. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Find the market value of the bonds using semiannual analysis. (Ignore the call price in your answer. Do not round intermediate calculations and round your answer to 2 decimal places.) Price of the bond $
Explanation / Answer
1 Par value (FV) $ 1,000 2 Coupon rate 8.00% 3 Number of compounding periods per year 2 4 = 1*2/3 Interest per period (PMT) $ 40.00 5 Number of years to maturity 10 6 = 3*5 Number of compounding periods till maturity (NPER) 20 7 Market rate of return/Required rate of return 6.00% 8 = 7/3 Market rate of return/Required rate of return per period (RATE) 3.00% Bond price PV(RATE,NPER,PMT,FV)*-1 Bond price $ 1,148.77