Jackson Corporation’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a yield to maturity of 10%. What is the current market price of these bonds?

Jackson Corporation’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a yield to maturity of 10%. What is the current market price of these bonds?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 1P

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Question

Jackson Corporation’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a yield to maturity of 10%. What is the current market price of these bonds?

Expert Solution

Step 1Analysis

Price of bonds is persent value of all coupons and persent value of face/par value of bond.

Formula for bond price = PV of all coupons+PV of face value

=Coupon*[1-1/(1+YTM)ⁿ]/YTM + Face value/(1+YTM)ⁿ

where

YTM = Yield to maturity rate

n = number of periods

Face value = Par value

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