Trying to work thru this without assistance but hitting a roadblock. If someone can show me how you arrived to the answer.
Smith Company has an issue of 9 year, 12% annual coupon bonds outstanding. The bonds, originally issued 13 years ago, have a face value (FV) of $1000, a YTM of 7%, and are noncallable.
What is the current market price of these bonds ?
_ Thank You _
n = 9
i = 7%
PMT = 120 (= 1,000 × 12%)
FV = 1,000
Solve for PV = -1,325.76
Question S2000, you did not include any mention of the “13 years ago” in your calculation. Is this piece of information to be disregarded ?
It is.
The value of an asset is the present value of its future cash flows, discounted back to the present at an appropriate interest rate.
Remember what Raul Julia said was the first rule of Italian racing (in The Gumball Rally, as he ripped the rearview mirror off of the windshield of the Ferrari Daytona Spyder and threw it over his shoulder): “_ What’s-a behind me is not important! _”
Thank you !
My pleasure.