Question

Barry’s Steroids Company has $1,000 par value bonds outstanding at 13 percent interest. The bonds will mature in 40 years. If the percent yield to maturity is 11 percent, what percent of the total bond value does the repayment of principal represent?

Answer 1

Answer:

$principle payement  = 1.75$%

Explanation:

From Appendix D

Present Value of Interest Payments

PVA = A × PVIFA (n = 40, i = 13%)

A = 0.13 * 1000 = 130

$PVIFA =  \frac{1 - (1-\frac{r}{t}^(-m\times t)}{\frac{r}{t}}$

$PVIFA =  \frac{1 - (1-\frac{0.13}{40}^(-40)}{0.13}$

          = 7.650

PVA = $130 × 7.650 = $994.5

From Appendix B

Present Value of Principal Payment

PV = FV × PVIF (n = 40, i = 13%)

PV = $1,000 × .0075 = $7.5

here PVIF value  AT 40 YEAR FOR 13 % is 0.0075

Present Value of Interest Payments = $994.5

Present Value of Principal Payment = $ 17.5

Total Present Value the Bond = interest payment + principal payment = $ 856.96

$principle \ payement  = \frac{17.5}{994.5} \times 100$

$principle payement  = 1.75$%