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  • Jun 1, 2007, 07:38 AM
    swilli
    finance / bond value
    How would I set this problem up and what formula should I use?

    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%
    b. 10%
    c. 13%
  • Jun 1, 2007, 09:40 AM
    rafian
    PV = C [ 1/r - 1/r(1+r)^t] + FV / (1+r)^25


    a) PV = $70 x [ 1/.08 - 1/ .08(1.08)^25] + 1000 / (1.08)^25

    = $70 x (12.5 - 1.825) + 146.02

    = 747.25 + 146.02

    = 893.27

    hope you can do the rest.

    P.S: C = coupon rate; r = interest rate; t = time

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