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Exodus Limousine Company has $1,000 par value bonds outstanding at 18 percent interest. The bonds will...

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Finance

Exodus Limousine Company has $1,000 par value bonds outstandingat 18 percent interest. The bonds will mature in 40 years. UseAppendix B and Appendix D for an approximate answer but calculateyour final answer using the formula and financial calculatormethods.

Compute the current price of the bonds if the percent yield tomaturity is: (Do not round intermediate calculations. Roundyour final answers to 2 decimal places. Assume interest paymentsare annual.)

Bond Price
a.6 percent?
b.10 percent?

Answer & Explanation Solved by verified expert
4.0 Ratings (797 Votes)

a

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =40
Bond Price =? [(18*1000/100)/(1 + 6/100)^k]     +   1000/(1 + 6/100)^40
                   k=1
Bond Price = 2805.56

b

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =40
Bond Price =? [(18*1000/100)/(1 + 10/100)^k]     +   1000/(1 + 10/100)^40
                   k=1
Bond Price = 1782.32

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Transcribed Image Text

Exodus Limousine Company has $1,000 par value bonds outstandingat 18 percent interest. The bonds will mature in 40 years. UseAppendix B and Appendix D for an approximate answer but calculateyour final answer using the formula and financial calculatormethods.Compute the current price of the bonds if the percent yield tomaturity is: (Do not round intermediate calculations. Roundyour final answers to 2 decimal places. Assume interest paymentsare annual.)Bond Pricea.6 percent?b.10 percent?

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