Midland Oil has $1,000 par value bonds outstanding at 8 ...
Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:
A. 7 percent.
B. 10 percent.
C. 13 percent
The Price of a bond is actually the sum of the PV of all future cash flows (PV of coupon payments plus PV of Face Value)
Coupon Payment = $1,000 × 8% = $80
A) YTM = 7%
Price = [pic]
[pic]Price [pic]
= ($80 × 11.6536) + ($1,000 × 0.184249)
= $932.29 + $184.25
= $1,116.54
B) YTM = 10%
For a Discount Rate of 10% and number of periods = 25
PVannuity = 9.0770
PVamount = 0.0923
Price of bond = ($80 × 9.0770) + ($1,000 × 0.0923)
= $818.46
C) YTM = 13%
Please see the attached excel sheet
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