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

Question

The Frush 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 semiannualy What is the current price of Bond M and Bond N? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Current price Bond M Bond N

Explanation / Answer

Bond M Years Cash flow Discount @ 6% Present Value 13 2700 0.4688 1265.865 14 2700 0.4423 1194.213 15 2700 0.4173 1126.616 16 2700 0.3936 1062.845 17 2700 0.3714 1002.684 18 2700 0.3503 945.9282 19 2700 0.3305 892.3851 20 2700 0.3118 841.8728 21 2700 0.2942 794.2196 22 2700 0.2775 749.2638 23 2700 0.2618 706.8526 24 2700 0.2470 666.8421 25 2700 0.2330 629.0963 26 2700 0.2198 593.4871 27 2700 0.2074 559.8935 28 2700 0.1956 528.2014 29 3000 0.1846 553.6702 30 3000 0.1741 522.3304 31 3000 0.1643 492.7645 32 3000 0.1550 464.8722 33 3000 0.1462 438.5587 34 3000 0.1379 413.7346 35 3000 0.1301 390.3157 36 3000 0.1227 368.2223 37 3000 0.1158 347.3795 38 3000 0.1092 327.7166 39 3000 0.1031 309.1666 40 63000 0.0972 6124.998 24313.99 Value of Bond M = $ 24313.99 Value of Bond N Value of Bond N = 60000*0.103667 6220.006 Value of Bond N = $ 6220.00 0.103667 1/(1.12^20)

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