CMS Corporation's balance sheet as of today is as follows: The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?

Question

Quizplus · Accepted Answer

To calculate the current market value of the debt, we need to calculate the present value of all the future cash flows from the bond. The cash flows from the bond are the coupon payments and the principal repayment at maturity. Using a financial calculator or Excel, we can calculate the present value of the cash flows as $5,412,032. Therefore, the current market value of the firm's debt is $5,412,032.

CMS Corporation's Balance Sheet as of Today Is as Follows