Question

Giant Electronics is issuing 20-year bonds that will pay coupons semiannually. The coupon rate on this bond is 7.8 percent. If the market rate for such bonds is 7 percent, what will the bonds sell for today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Answer 1

$1,085.42

Step-by-step explanation:

Given:

Coupon rate = 7.8% annual or 7.8 / 2 = 3.9% semi annual

YTM (rate) = 7% annual or 7 / 2 = 3.5% semi annual

Let face value of bond (FV) = $1,000

Coupon payment (pmt) = 1,000 × 0.039 = $39

Time period (nper) = 20 × 2 = 40 periods

Selling price of bond today means Present value of bond can be calulated using spreadsheet function =PV(rate,nper,pmt,FV)

Present value or selling price of bond today is $1,085.42