7-12. (Bond valuation-zero coupon) The Latham Corporation is planning on issuing

ID: 1174954 • Letter: 7

Question

7-12. (Bond valuation-zero coupon) The Latham Corporation is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 7 years from their purchase. To price these bonds competitively with other bonds of equal risk, it is determined that they should yield 6 percent, compounded annually. At what price should the Latham Corporation sell these bonds? 7-13. (Bond valuation) You are examining three bonds with a par value of $1,000 r- nd ra concerned with what would happen to

Explanation / Answer

Using financial calculator BA II Plus - Input details:

I/Y = Rate or yield / frequency of coupon in a year =

6.000000

PMT = Coupon rate x FV / frequency =

$0.00

N = Number of years remaining x frequency =

7.00

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$665.06