Calculate the price as the present value of future cash

Reference no: EM13769637

HINT: The trick here is just to calculate the price as the present value of future cash flows, just like in Chapter 6. Notice that the coupon payments) don't start immediately for one bond. You must adjust the present value equation for an annuity to reflect that the payments do not start at the end of one compounding period.

The McKeegan Corporation has two different bonds currently outstanding. Bond M has a face value of $10,000 and matures in 22 years. The bond makes no payments for the first 7 years, then pays $600 every six months over the subsequent 8 years, and finally pays $700 every six months over the last 7 years. Bond N also has a face value of $10,000 and a maturity of 22 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 12 percent compounded semiannually, the current price of Bonds M and N is $ and $ , respectively. (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16))

Reference no: EM13769637

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