Exodus Limousine Company has $1,000 par value bonds outstanding at 15 percent interest. The bonds will mature in 30 years. Compute the current price of the bonds if the percent yield to maturity is:

a. 4 percent

b. 8 percent

Calculate the final answer up to two decimal places. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume interest is paid annually.

if YTM at 4% price :  $2,902.1237

if YTM at 8% price :  $1,788.0448

The bonds are above face value asthey offer a higher coupon payment than the market yield therefore the bond holders are willing to pay above theri face value

Explanation:

the market price of the bond will be the present value of coupo payment and maturity:

C150.000

time30

rate0.04

PV$2,593.8050

Maturity   1,000.00

time   30.00

rate  0.04

PV   308.32

PV c$2,593.8050

PV m  $308.3187

Total$2,902.1237

No we repeat the process with the yield at 8%

C150.000

time30

rate0.08

PV$1,688.6675

Maturity   1,000.00

time   30.00

rate  0.08

PV   99.38

PV c$1,688.6675

PV m  $99.3773

Total$1,788.0448

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