Question

A bank buys bonds with a par value of $25 million for $24,040,000. The coupon rate is 10 percent, and the bonds pay annual payments. The bonds mature in four years. The bank wants to sell them in two years, and estimates the required rate of return in two years will be 8 percent. What will the market value of the bonds be in two years?

Answer 1

$25,891,632.37

Step-by-step explanation:

The computation of the market value of the bond in two years is given below:

We know that

Market value of the bonds be in two years is

= pv(rate, nper,pmt,fv)

Here

Nper = 2

PV = ?

PMT = 25000000 × 10% = 2500000

FV = 25000000

Rate = 8%

Now

Market value of the bonds be in two years is

= pv( 8%,2,2500000,25000000)

= $25,891,632.37