Question: (For the first 20 bond problems, assume interest payments are on an annual basis.) Bond value (LO10-3) The Lone Star Company has $1,000 par value

(For the first 20 bond problems, assume interest payments are on an annual basis.)

  1. Bond value (LO10-3) The Lone Star Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is
  2. 6 percent.
  3. 9 percent.

a. 6 percent yield to maturity

Present Value of Interest Payments

PVA = A PVIFA (n = 20, i = 6%) Appendix D

Present Value of Principal Payment at Maturity

PV = FV PVIF (n = 20, i = 6%) Appendix B

Total Present Value

Present Value of Interest Payments

Present Value of Principal Payment

Total Present Value or Price of the Bond

b. 9 percent yield to maturity

PVA = A PVIFA (n = 20, i = 9%) Appendix D

PV = FV PVIF (n = 20, i = 9%) Appendix B

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