The Metchosin Corporation has two different bonds currently outstanding. Bond M

Question

The Metchosin Corporation has two different bonds currently outstanding. Bond M has a face value of $60,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,700 every six months over the subsequent eight years, and finally pays $3,000 every six months over the last six years. Bond N also has a face value of $60,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 12 percent compounded semiannually, what is the current price of bond M and bond N? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Current Bond M Bond N 2404 5832

Explanation / Answer

a)

PV of payments = (2700*(1-(1+6%)-16 ) / 6%) * (1+6%)-12 = 13560.26

PV of payments = (3000*(1-(1+6%)-12 ) / 6%) * (1+6%)-28 = 4920.40

PV of face value = 60000*(1+6%)-40 = 5833.33

Price = 13560.26 + 4920.40 + 5833.33 = 24313.99 = 24314

If bond doesnt pay face value at the end

Price = 13560.26 + 4920.40 = 18480.66

b)

Bond N

PV of bond = 60000*(1+6%)-40 = 5833.33

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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