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cookie dough corporation has two different bonds currently outstanding. bond m has a face value of $20,000 and matures in 20 years. the bond makes no payments for the first six years, then pays $2,300 every six months over the subsequent eight years, and finally pays $2,600 every six months over the last six years. bond n also has a face value of $20,000 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 and round your answers to 2 decimal places, e.g., 32.16.)

Sagot :

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Bond price is defined as the present discounted value of a bond's potential future cash flow. It is the total of the present values of all anticipated coupon payments plus the par value at maturity.

How do you calculate the price of a bond?

  • Bond Price = C* (1-(1+r)-n/r ) + F/(1+r)
  1. F stands for the bond's face or par value
  2. r for yield to maturity (YTM).
  3. n is the number of periods until maturity.
  • PV of par paid at maturity is:

= Face Value / (1 + r) ^ n

  • Due to the fact that this rate is semiannual, it will be as follows:

= 10 / 2 = 5%

  • Due to the fact that it is semiannual, the number of years, or n, has doubled to 40.

= 20,000 / (1+ 0.05) ^ 40 = $2,840.92

  • Using the Present Value annuity, the PV of the 16 will be calculated.

PVOA = PMT [ (1 - {1/ (1 + i) ^ n}) / i ]

where

Pmt is $3,000

n is 16 years

i is 0.05 = 3,000 [ (1 - {1/ (1 + 0.05) ^ 16}) / 0.05]

= 3,000 [ (1- 0.45811) / 0.05]

= 3,000 × 10.8378

= $32,513.4

PV at t = 0

= 32,513.4 / 1.05 ^ 12

= $18,104.68

PV of the 12 year

where  pmt is $3,300

t =14

= 3300 [ ( 1- {1/ 1.05 ^12)} / 0.05]

= 3300 [ 0.44316 / 0.05]

= $29,248.56

PV at 12

= 29,248.56 / 1.05 ^12

= $7,461.12

  • PV of Bond M = $2,840.92 + $18,104.68 + $7,461.12 = $28,406.72

BOND N

  • The Excel present value formula is used to calculate the bond's present value:

=-PV(rate,nper,pmt,fv, type)

where  it is 5%.

  • Due to the fact that nper is semiannual, the number of years has been doubled to 40.

pmt is 0

Fv is $20,000

  • The values being entered into the formula:

=-Pv(5%,40,0,20000,0) = $2,840.91

Current Price of Bond M is $28,406.72

Current Price of Bond N is $2,840.91.

To Learn more about Bond price refer to :

https://brainly.com/question/26376004

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