Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 12 percent

Question

Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 12 percent annual interest. The current yield to maturity on such bonds in the market is 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Compute the price of the bonds for these maturity dates: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)
  

Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have a quoted annual interest rate of 8 percent and the interest is paid semiannually. The yield to maturity on the bonds is 10 percent annual interest. There are 9 years to maturity.    
  
Compute the price of the bonds based on semiannual analysis. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
  

Explanation / Answer

Ans 1) bond price = coupon * (1 - (1+r)^-n)/r + Face value/(1+r)^n

a) Bond Price = 120 * (1 - 1.1^-40).1 + 1000/(1.1)^40

Bond Price = $1195.58

b) Bond price = 120 * (1 - 1.1^-25).1 + 1000/(1.1)^25

Bond Price = $1181.54

c) Bond price = 120 * (1 - 1.1^-6).1 + 1000/(1.1)^6

Bond Price = $1087.11

Ans 2)  bond price = coupon/2 * (1 - (1+r/2)^-2*n)/(r/2) + Face value/(1+r/2)^(2*n)

Bond price = 80/2 * (1 - (1 + .1/2)^-(2*9))/(.1/2) + 1000/(1+ .1/2)^(2*9)

Bond Price = $883.10

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