The McKeegan Corporation has two different bonds currently outstanding. Bond M h

Question

The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $22,500 and matures in 22 years. The bond makes no payments for the first 7 years, then pays $1,600 every six months over the subsequent 8 years, and finally pays $1,900 every six months over the last 7 years. Bond N also has a face value of $22,500 and a maturity of 22 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 10 percent compounded semiannually, the current price of Bonds M and N is $ and $ , respectively.

Explanation / Answer

Bond M 0.5 0 0.952381 0 Bond N 0 0 1 0 0.907029 0 0 0 1.5 0 0.863838 0 0 0 2 0 0.822702 0 0 0 2.5 0 0.783526 0 0 0 3 0 0.746215 0 0 0 3.5 0 0.710681 0 0 0 4 0 0.676839 0 0 0 4.5 0 0.644609 0 0 0 5 0 0.613913 0 0 0 5.5 0 0.584679 0 0 0 6 0 0.556837 0 0 0 6.5 0 0.530321 0 0 0 7 0 0.505068 0 0 0 7.5 1600 0.481017 769.627357 0 0 8 1600 0.458112 732.978435 0 0 8.5 1600 0.436297 698.0747 0 0 9 1600 0.415521 664.833048 0 0 9.5 1600 0.395734 633.174331 0 0 10 1600 0.376889 603.023173 0 0 10.5 1600 0.358942 574.307783 0 0 11 1600 0.34185 546.959794 0 0 11.5 1600 0.325571 520.914089 0 0 12 1600 0.310068 496.108656 0 0 12.5 1600 0.295303 472.484435 0 0 13 1600 0.281241 449.985176 0 0 13.5 1600 0.267848 428.55731 0 0 14 1600 0.255094 408.149819 0 0 14.5 1600 0.242946 388.714114 0 0 15 1600 0.231377 370.203918 0 0 15.5 1900 0.220359 418.683002 0 0 16 1900 0.209866 398.745717 0 0 16.5 1900 0.199873 379.757825 0 0 17 1900 0.190355 361.674119 0 0 17.5 1900 0.18129 344.451542 0 0 18 1900 0.172657 328.049088 0 0 18.5 1900 0.164436 312.427703 0 0 19 1900 0.156605 297.550193 0 0 19.5 1900 0.149148 283.381136 0 0 20 1900 0.142046 269.886796 0 0 20.5 1900 0.135282 257.035044 0 0 21 1900 0.12884 244.79528 0 0 21.5 1900 0.122704 233.138362 0 0 22 1900 0.116861 222.036535 22500 2629.38 Present Value 13109.7085 2629.38

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