Question

Question 17 5 pts Kidder Corporation's balance sheet shows an historical book value for long-term debt (bonds, at par) of $23,500,000. The bonds have an 6.4% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 9.05% , so the bonds now selll below par. VWhat is the current market value of the firm's debt? Hint: Calculate the price of the bonds, and multiply by number of bonds (book value/ 1,000) to calculate market value. Your answer should be between 17,746,000 and 20,054,000, with no special characters.

Answer 1

Coupon = (0.064 * 1000) / 2 = 32

Number of periods = 10 * 2 = 20

Rate = 9.05% / 2 = 4.525%

Price = Coupon * [1 - 1 / (1 + r)ⁿ] / r + FV / (1 + r)ⁿ

Price = 32 * [1 - 1 / (1 + 0.04525)²⁰] / 0.04525 + 1000 / (1 + 0.04525)²⁰

Price = 32 * 12.979803 + 412.663897

Price = $828.0176

Number of bonds = 23,500,000 / 1,000

Number of bonds = 23,500

Current market value = 23,500 * $828.0176

Current market value = $19,458,414