The Kalodop Corporation issues 12% annual coupon bonds that pay $1,000 at maturi

Question

The Kalodop Corporation issues 12% annual coupon bonds that pay $1,000 at maturity. These bonds mature in 15 years. What is the value (PV) or (Vb) of the bonds if the current or market or prevailing or going or YTM is 10%. Show work

Now assume that the current or market or prevailing or going or YTM rate is 12% on the bond above. What is its Vb or PV? show work

Now assume that the current or market or prevailing or going or YTM rate is 14% on the bond above. What is the Vb or PV? Show work

Explanation / Answer

Values of the bond (Vb)= PV of its future cash flows ie. PV of annual interest payments till maturity + PV of face value @ maturity ie PV(annuity) + PV(lump sum) 1)Vb = Annual coupon amount on face value (PMT) ( (1 - (1 + r)-^n)/r)   +   Face value of bond / (1 + r)^n Vb =   ? ; PMT = 1000 * 12% = 120; r = 10% ( YTM rate) ie 0.10; n = 15 years YTM = 10% Vb = 120 ( 1 - (1.10)^-15 / 0.10)     +     1000 / (1.10 ) ^15 Vb   =   912.73 + 239.39 = $ 1152.12 Vb if the bonds is $ 1152.12 YTM par value ; it is a premium bond YTM = 12% 2) Vb = Annual coupon amount on face value (PMT) ( (1 - (1 + r)-^n)/r)   +   Face value of bond / (1 + r)^n Vb =   ? ; PMT = 1000 * 12% = 120; r = 12% ( YTM rate) ie 0.12; n = 15 years        Vb = 120 ( 1 - (1.12)^-15 / 0.12)      +     1000 / (1.12 ) ^15 Vb   =   817.30 + 182.70 = $ 1000 Vb if the bonds is $ 1000 YTM = coupon rate so price is = par value ; it is a par value bond YTM = 14% 3) Vb = Annual coupon amount on face value (PMT) ( (1 - (1 + r)-^n)/r)   +   Face value of bond / (1 + r)^n Vb =   ? ; PMT = 1000 * 12% = 120; r = 14% ( YTM rate) ie 0.14; n = 15 years        Vb = 120 ( 1 - (1.14)^-15 / 0.14)      +     1000 / (1.14 ) ^15 Vb   =   737.06 + 140.10 = $ 877.16 Vb if the bonds is $ 877.16 YTM > coupon rate so price is

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.