The McKeegan Corporation has two different bonds currently outstanding. Bond M h
ID: 2704041 • Letter: T
Question
The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $14,000 and matures in 24 years. The bond makes no payments for the first 7 years, then pays $800 every six months over the subsequent 10 years, and finally pays $1,000 every six months over the last 7 years. Bond N also has a face value of $14,000 and a maturity of 24 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
the current price of Bonds M = (800PVIFA(5%,20))/(1.05)^14 + (1000PVIFA(5%,14) )/(1.05)^34 + 14000/(1.05)^48 = $8265.65
the current price of Bonds N =14000/(1.05)^48 = $1345.99
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