Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually, they have a...

Question

Question

Madsen Motorss bonds have 23 years remaining to maturity. Interest is paid annually, they have a $1,000 par value; the coupo

business finance

Answer 1

Answer #1

Annual coupon=1000*7.5%=75

Hence current price=Annual coupon*Present value of annuity factor(8%,23)+$1000*Present value of discounting factor(8%,23)

=75*10.3710589+1000*0.170315284

=$948.14(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=75[1-(1.08)^-23]/0.08

=75*10.3710589

2.Present value of discounting factor=1000/1.08^23

=1000*0.170315284

Answer 2

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