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Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 10 percent annual interest....

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Finance

Kilgore Natural Gas has a $1,000 par value bond outstanding thatpays 10 percent annual interest. The current yield to maturity onsuch bonds in the market is 12 percent. Use Appendix B and AppendixD for an approximate answer but calculate your final answer usingthe formula and financial calculator methods.

Compute the price of the bonds for these maturity dates:(Do not round intermediate calculations. Round your finalanswers to 2 decimal places. Assume interest payments areannual.)

Bond Price
a.40 years?
b.20 years?
c.5 years?

Answer & Explanation Solved by verified expert
3.6 Ratings (297 Votes)

a

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =40
Bond Price =? [(10*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^40
                   k=1
Bond Price = 835.12

b

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =20
Bond Price =? [(10*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^20
                   k=1
Bond Price = 850.61

c

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =5
Bond Price =? [(10*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^5
                   k=1
Bond Price = 927.9

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Transcribed Image Text

Kilgore Natural Gas has a $1,000 par value bond outstanding thatpays 10 percent annual interest. The current yield to maturity onsuch bonds in the market is 12 percent. Use Appendix B and AppendixD for an approximate answer but calculate your final answer usingthe formula and financial calculator methods.Compute the price of the bonds for these maturity dates:(Do not round intermediate calculations. Round your finalanswers to 2 decimal places. Assume interest payments areannual.)Bond Pricea.40 years?b.20 years?c.5 years?

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