Madsen Motors's bonds have 24 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the yield to maturity is 10%. What is the bond's current market price? Round your answer to the nearest cent. $
Madsen Motors's bonds have 24 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 9%, and the yield to maturity is 10%. What is the bond's current market price? Round your answer to the nearest cent. $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:**Bond Valuation Problem**
*Madsen Motors's bonds:*
- **Years to Maturity:** 24 years
- **Interest Payment:** Annually
- **Par Value:** $1,000
- **Coupon Interest Rate:** 9%
- **Yield to Maturity:** 10%
**Task:**
Calculate the bond's current market price. Ensure to round your answer to the nearest cent. Enter your response in the space provided.
---
*Tools:*
- **eBook:** Additional reading material.
- **Problem Walk-Through:** Step-by-step solution guide.
Expert Solution
Step 1
Current market price of a bond is the PV of its future coupon and par value. The formula to determine the price of the bond is as below
Where C = annual coupon = Coupon interest rate x par value
r = YTM
n = time to maturity
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