# Financial Management: P16-8 Twenty-five-year B-rated bonds of Parker Optical Company

Financial Management

Problem 16-8 Interest rates and bond ratings

Twenty-five-year B-rated bonds of Parker Optical Company were initially issued at a 12 percent yield. After 10 years the bonds have been upgraded to Aa2. Such bonds are currently yielding 10 percent to maturity.

Required:

Determine the price of the bonds with 15 years remaining to maturity. Assume the par value of the bond is $1,000. (Round "PV Factor" to 3 decimal places. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Given - Table 16-3

Interest Rates and Bond Prices (the bond pay 12%)

Rates in the Market (%) - Yield to Maturity*

Years to Maturity 8% 10% 12% 14% 16%

1.................... $1,038.16 $1,018.54 $1,000 $981.48 $963.98

15.................. $1,345.52 $1,153.32 $1,000 $875.54 $774.48

25.................. $1,429.92 $1,182.36 $1,000 $862.06 $754.98

*The prices in the table are based on semi-annual interest, but you enter the table with annual values

Problem 16-8 Interest rates and bond ratings

Twenty-five-year B-rated bonds of Parker Optical Company were initially issued at a 12 percent yield. After 10 years the bonds have been upgraded to Aa2. Such bonds are currently yielding 10 percent to maturity.

Required:

Determine the price of the bonds with 15 years remaining to maturity. Assume the par value of the bond is $1,000. (Round "PV Factor" to 3 decimal places. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Given - Table 16-3

Interest Rates and Bond Prices (the bond pay 12%)

Rates in the Market (%) - Yield to Maturity*

Years to Maturity 8% 10% 12% 14% 16%

1.................... $1,038.16 $1,018.54 $1,000 $981.48 $963.98

15.................. $1,345.52 $1,153.32 $1,000 $875.54 $774.48

25.................. $1,429.92 $1,182.36 $1,000 $862.06 $754.98

*The prices in the table are based on semi-annual interest, but you enter the table with annual values

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