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Chapter 4: Q4BP (page 321)

Barry鈥檚 Steroids Company has $1,000 par value bonds outstanding at 16 percent interest. The bonds will mature in 40 years. If the percent yield to maturity is 13 percent, what percent of the total bond value does the repayment of principal represent?

Short Answer

Expert verified

The percentage of the principal as a percentage of bond price is 0.6127%

Step by step solution

01

Computation of coupon

Annualcoupon=Bondoutstanding脳Annualinterest=$1,000脳16%=$160

02

Computation of Total bond price-

Bondprice=Coupon脳[1-11+rn]r+P(1+r)n=$160脳[1-11+0.1340]0.13+$1000(1+0.13)40=$160脳7.634+7.53=$1,228.97

03

Computation of the principal as a percentage of bond price-

Percentage=PrincipalAmountBondPrice=$1,000$1,228.97=81.37%

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