fnh corporations balance sheet as of today is as follows lon

fnh corporations balance sheet as of today is as follows

long term debt $10000000

preferred stock 2000000

common stock ($10 par) 10000000

retained earnings 4000000

total debt and equity $26000000

the bonds have an 8.2% coupon rate, payable semiannually, and a par value of$1000. they mautre exactly 10 years from today. the yield to maturity is 11% so the bonds now sell below par. what is the curretn market value of the firms debt?

Solution

PMT = 41, FV = 1000, N = 20, rate = 5.5%

use PV function in Excel

market value of 1 bond = 832.69

the curretn market value of the firms debt = 83.269% of 10,000,000 = 8,326,946.45