Questions p. 210-211

(5-1)

Bond Valuation with Annual payments

Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a 1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

VB INTr[1 -(1rd)-n]/i M*(1rd)-n

INT par value

M maturity value

r coupon rate per coupon payment period

rd effective interest rate per coupon payment period

n number of coupon payments remaining

INT 1000. And, since we are not given the maturity value, we can assume that it is the same as the par value. Therefore, M 1000.

r .08

i .09

n 12

Market price of the bonds1000.08 (1 - )/.09 1000*

Market price of the bonds

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