1. One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 6.3% annual coupon bonds at...

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1. One year ago Lerner and Luckmann Co. issued 15-year,noncallable, 6.3% annual coupon bonds at their par value of $1,000.Today, the market interest rate on these bonds is 5.5%. What is thecurrent price of the bonds, given that they now have 14 years tomaturity?
2.
CMS Corporation's balance sheet as of today is as follows:
Long-term debt (bonds, at par) $10,000,000
Preferred stock 2,000,000
Common stock ($10 par) 10,000,000
Retained earnings 4,000,000
Total debt and equity
$26,000,000
The bonds have an 4.1% coupon rate, payable semiannually, and apar value of $1,000. They mature exactly 10 years from today. Theyield to maturity is 12%, so the bonds now sell below par. What isthe current market value of the firm's debt?
Select the correct answer.
a. $5,468,682
b. $5,466,583
c. $5,467,282
d. $5,469,381
e. $5,467,982
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Answer & Explanation Solved by verified expert

4.0 Ratings (492 Votes)

1Current Market price per bond The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face ValuePar Value The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator Here the calculation of the Bond Price using financial calculator is as follows See Answer

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1. One year ago Lerner and Luckmann Co. issued 15-year,noncallable, 6.3% annual coupon bonds at their par value of $1,000.Today, the market interest rate on these bonds is 5.5%. What is thecurrent price of the bonds, given that they now have 14 years tomaturity?2.CMS Corporation's balance sheet as of today is as follows:Long-term debt (bonds, at par)$10,000,000Preferred stock2,000,000Common stock ($10 par)10,000,000Retained earnings4,000,000Total debt and equity$26,000,000The bonds have an 4.1% coupon rate, payable semiannually, and apar value of $1,000. They mature exactly 10 years from today. Theyield to maturity is 12%, so the bonds now sell below par. What isthe current market value of the firm's debt?Select the correct answer.a. $5,468,682b. $5,466,583c. $5,467,282d. $5,469,381e. $5,467,982Icon

Long-term debt (bonds, at par)	$10,000,000
Preferred stock	2,000,000
Common stock ($10 par)	10,000,000
Retained earnings	4,000,000
Total debt and equity	$26,000,000