   Chapter 7, Problem 1P Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

BOND VALUATION Madsen Motors’s bonds have 23 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 11%. What is the bond’s current market price? Summary Introduction To identify: Current market price of the bond. Bond Valuation: Bond valuation refers to the evaluation of bonds value at any point of time which can be used for decision making. Valuation of bond is done for comparison and analysis. Explanation Given, Interest rate is 9%. Yield to maturity (YTM) is 11%. Par value of bond is$1,000.

Maturity is after 23 years.

Formula to calculate present value of bond,

Bond'svalue=t=1NINT(1+rd)t+Parvalue(1+rd)N

Where,

• INT is the interest rate

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