Question

Exodus Limousine Company has $1,000 par value bonds outstanding at 17 percent interest. The bonds will mature in 40 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 percent yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)

Answer 1

Answer:

Consider the following calculation

Explanation:

Yield to maturity is not given here. So we assume that Yield to maturity is 10%.

Present value of interest payment :

PV = A*PVIFA (n= 40,i =10%)

= 170*9.7791

= 1662.45

Present value of principal payment at maturity

PV = FV*PVIF (n= 40,i =10%)

= 1000 * .0221

= 22.10

Current price of bond = 1662.45+22.10

= $ 1684.55