Hewitt Packing Company has an issue of $1,000 par value bonds with a 14 percent annual couponinterest rate. The issue has ten years remaining to the maturity date. Bonds of similar risk arecurrently selling to yield a 12 percent rate of return. The current value of each Hewitt bond is __________.

Question

Quizplus · Accepted Answer

To calculate the current value of each Hewitt bond, we can use the formula for present value of a bond:

PV = (C / r) * (1 - (1 + r)^(-n)) + (F / (1 + r)^n)

Where:
C = annual coupon payment = 14% * $1,000 = $140
r = current yield to maturity = 12%
n = remaining years to maturity = 10
F = par value = $1,000

Plugging in the values, we get:

PV = ($140 / 0.12) * (1 - (1 + 0.12)^(-10)) + ($1,000 / (1 + 0.12)^10)
PV = $1,113

Therefore, the current value of each Hewitt bond is $1,113.

Hewitt Packing Company Has an Issue of $1,000 Par Value