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Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 13 percent annual interest....

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Finance

Kilgore Natural Gas has a $1,000 par value bond outstanding thatpays 13 percent annual interest. The current yield to maturity onsuch bonds in the market is 14 percent. Use Appendix B and AppendixD for an approximate answer but calculate your final answer usingthe formula and financial calculator methods.

Compute the price of the bonds for these maturity dates:(Do not round intermediate calculations. Round your finalanswers to 2 decimal places. Assume interest payments areannual.)

Bond Price
a.30 years
b.15 years
c.9 years

Answer & Explanation Solved by verified expert
3.6 Ratings (428 Votes)

Bond Price
a. 30 Years $ 929.97
Working:
Price of bond is the present value of cash flows from bond which is calculated as follows:
Price of bond = =-pv(rate,nper,pmt,fv)
= $ 929.97
Where,
pv Present value of cash flows from bond = ?
rate Yield to maturity = 14%
nper Number of period = 30
pmt Coupon payment = 1000*13% = $        130
fv Par Value = $    1,000
Bond Price
b. 15 Years $ 938.58
Working:
Price of bond = =-pv(rate,nper,pmt,fv)
= $ 938.58
Where,
pv Present value of cash flows from bond = ?
rate Yield to maturity = 14%
nper Number of period = 15
pmt Coupon payment = 1000*13% = $        130
fv Par Value = $    1,000
Bond Price
c. 9 Years $ 950.54
Working:
Price of bond = =-pv(rate,nper,pmt,fv)
= $ 950.54
Where,
pv Present value of cash flows from bond = ?
rate Yield to maturity = 14%
nper Number of period = 9
pmt Coupon payment = 1000*13% = $        130
fv Par Value = $    1,000

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