The bradford company issued 10% bonds, dated january 1, with a face amount of $80 million on january 1, 2018 to saxton-bose corporation. the bonds mature on december 31, 2027 (10 years). for bonds of similar risk and maturity, the market yield is 12%. interest is paid semiannually on june 30 and december 31. determine the price of the bonds at janary 1 2018.

The price of the bonds at Janary 1 2018 is $70,824,063

Explanation:

Data:

Face Amount = F = $80,000,000  

Time = n = 10 years * 2 (semiannually) = 20 semesters  

Yield = r = 12% / 2 (semiannually) = 6% = 0.06

Payment = C = $80,000,000 * 10% / 2 = $4,000,000

Computation:

Bond Price = (C * (1 - (1 + r)^-n) / r) + (F / (1 + r)^n)

Bond Price = ($4,000,000 * (1 - (1 + 0.06)^-20) / 0.06) + ($80,000,000 / (1 + 0.06)^20)

Bond Price = ($4,000,000 * 11.46992) + $24,944,378.15089

Bond Price = $45,879,684.87426 + $24,944,378.15089

Bond Price = $70,824,063

Hope this helps!