Question

( BACK PRINTER VERSION NEXT URCES Problem 8.04 ent Blossom Inc. has seven-year bonds outstanding that pay a 14 percent coupon rate. Investors buying these bonds today can expect to earn a yield to maturity of 7.400 percent. What is the current value of these bonds? Assume annual coupon payments. (Round answer to 2 decimal places, e.g. 15.25.) Current value Click if you would like to Show Work for this question: Open Show Work n Pool LINK TO TEXT on Pool on Pool Question Attempts: 0 of 2 used s by Study SUBMIT ANSWER SAVE FOR LATER

Answer 1

Price of the bond is = Present value of future payments disocunted at YTM Future payments are Annual Coupon Payments and Maturity amount Coupon payments is = Face value * Coupon Rate Face value is $ 1,000 Coupon Rate is = 14% P.A So Coupon Payment is = 1000*14%= $ 140/- YTM or Interest rate is 7.40% per annum Coupon payments tenure is 7 Yrs Maturity proceeds of the bond is $ 1,000/- Computation of Present value of Future Payments Cash PVF @ Present Period Flows ($) 7.40% Value $ 140 0.931 130.35 140 0.867 121.37 140 0.807 113.01 140 0.752 105.22 140 0.700 97.97 140 0.652 91.22 140 0.607 84.94 1,000 606.69 Price of the Bond 1,350.79 0.607 Current value of the bond is $ 1,350.79).