g Exodus Limousine Company has $1,000 par value bonds outstanding at 15 percent interest. The bonds will mature in 30 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the percent yield to maturity is

Question:

Exodus Limousine Company has $1,000 par value bonds outstanding at 15 percent interest. The bonds will mature in 30 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the percent yield to maturity is 10%

Note the tutor added 10% as the yield

Price of bond= $1,471.35

Explanation:

The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV) discounted at the yield rate

Value of Bond = PV of interest + PV of RV

The value of bond  Exodus Limousine Company can be worked out as follows:

Step 1  

PV of interest payments

PV = A × (1+r)^(-n)/r

A-annul interest payment:

= 15% × 1,000 = 150

r-Annual yield = 10%  

n-Maturity period = 30

PV of interest payment:  

=150× (1- (1+0.1)^(-30)/0.1= 1,414.037

Step 2  

PV of Redemption Value

= 1000 × (1.1)^(-30) = 57.308

Step 3

Price of bond

=1,414.037 + 57.308 = 1,471.345

Price of bond= $1,471.345

answer; bootstrapping is your answer;