Madsen Motors's bonds have 13 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon i
nterest rate is 11%; and the yield to maturity is 9%. What is the bond's current market price? Round your answer to the nearest cent. $
1 answer:
Answer:
$1,149.74
Explanation:
In this question we use the Present value formula that is shown on the attachment below:
Data provided in the question
Future value = $1,000
Rate of interest = 9%
NPER = 13 years
PMT = $1,000 × 11% = $110
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after solving this, the current market price of the bond is $1,149.74
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Answer:
The expected profit will be of 700 dollars
Explanation:
The expected profit will be the multiplication of the outcomes by their probability:
We have 10% chance of selling <u>zero </u>thus:
1,000(0) + 200(3-0) - 1,500 = -900
We have 20% chance of selling <u>one </u>thus:
1,000(1) + 200(3-1) - 1,500 = -100
We have 30% chance of selling <u>two </u>thus:
1,000(2) + 200(3-2) - 1,500 = 700
We have 40% chance of selling <u>all </u>thus:
1,000(3) + 200(3-3) - 1,500 = 1,500
We add each weighted profit to get the expected result:
-90 - 20 + 210 + 600 = 700