Question

Assume that Bunch Inc. has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's expected rate of return on these bonds is 5%. How much would these bonds sell for today

Answer 1

$1,244

Step-by-step explanation:

According to the scenario, the given data are as follows:

Future value (FV) = $1,000

Interest = 7%

So, Payment (PMT) = $1,000 × 7% = $70

Rate of return (rate) = 5%

Time period (Nper) = 18 years

So, by putting the following data in PV formula in excel sheet,

Attachment is attached below.

Present value of Bonds = $1,233.79 or $1,244