Hi,

I have provided problem with solutions, kindly provide the solutions in Excel with problem calculation.

1. The Altoona Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 10% annual rate.

a. What is the bond's price today if the interest rate on comparable new issues is 12%?

b. What is the price today if the interest rate is 8%?

SOLUTION:

P_B= PMT [PVFA_k,n] + FV [PVF_k,n]

a. n = 20 2 = 40 k = 12/2 = 6 PMT = $1,000 .10/2 = $50 FV = $1,000

P_B= $50 [PVFA_6,40] + $1,000 [PVF_6,40]

= $50 (15.0463) + $1,000 (.0972)

= $849.52

b. k = 8/2 = 4

P_B= $50 [PVFA_4,40] + $1,000 [PVF_4,40]

= $50 (19.7928) + $1,000 (.2083)

= $1,197.94

11. Smithson Co.'s Class A bonds have 10 years to go until maturity. They have a $1,000 face value and carry coupon rates of 8%. Approximately what do the bonds yield at the following prices?

a. $770?

b. $1,150?

SOLUTION: A series of iterations leads to the following approximate solutions for a. and b.

P_B= PMT [PVFA_k,n] + FV [PVF_k,n]

a. P_B= $40 [PVFA_6,20] + $1,000 [PVF_6,20]

12% = $40 (11.4699) + $1,000 (.3118)

= $770.60

b. P_B= $40 [PVFA_3,20] + $1,000 [PVF_3,20]

6% = $40 (14.8775) + $1,000 (.5537)

= $1,148.80

22. The Maritime Engineering Corp sold 1,500 convertible bonds two years ago at their $1,000 par value. The 20-year bonds carried a coupon rate of 8% and were convertible into stock at $20 per share. At the time, the firm's stock was selling for $15, and similar bonds without a conversion feature were yielding 10%. Maritime's stock is now selling for $25. The firm does not pay dividends.

c. What was the conversion premium of the bond at the time it was issued?

c. The value as a bond is:

PMT = $1,000(.08)/2 = $40 k = 10/2 = 5

FV = $1,000 n = 20 x 2 = 40

P_B= PMT[PVFA_k,n] + FV[PVF_k,n]

= $40[PVFA_5,40] + $1,000[PVF_5,40]

=$40(17.1591) + $1,000(.1420)

= $686.36 + $142.00

= $828.36

The Conversion Ratio is ($1,000/$20=) 50, so the Value as Stock line is

P_B= 50P_S.

Find the break point along the minimum value path

P_B= 50P_S.

$828.36 = 50P_S

P_S= $16.57