Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Compute the current price of the bonds if the present yield to maturity is:
a. 7 percent.
b. 10 percent.
c. 13 percent.
Here is what I came up with?
PVa =A x PVifa = Present Value of Interest Payments.
PV = FV x PVif = Present Value of Principal Payment at Maturity.
Total Present Value = Present Value of Interest Payments + Present Value of Principal at Maturity.
a) 7% / n = 25 / I = 7%
PVa = $80 x 11.654 = $932.32
PV = $1,000 x .184 = $184.00
Total = $932.32 + $184.00 = $1,116.32
b) 10% / n = 25 / I = 10%
PVa = $80 x 9.077 = $726.16
PV = $1,000 x .092 = $92.00
Total = $932.32 + $184.00 = $818.16
c) 13% / n = 25 / I = 13%
PVa = $80 x 7.330 = $586.40
PV = $1,000 x .047 = $47.00
Total = $586.40 + $47.00 = $633.40
:)
Not sure if this is right.
