Question

Borrower, Inc., issued $500,000, 7%, semiannual coupon bonds on April 6, 2010. The bonds mature on April 6, 2035. The bonds were issued with a yield-to-maturity of 5%. All rates are APR's with semiannual compounding. Required: At what price would the bonds sell on April 6, 2020, if the market rate of interest for similar bonds was 4%?

Answer 1

The bond should sell for $ 667,973.42 at April 6,2020

Step-by-step explanation:

Note that at April 6,2020,the bond has 15 years to maturity.

The price of the bond issue van be computed using the rate formula in excel,which is given as =-pv(rate,nper,pmt,fv)

rate is the yield to maturity of 4% divided by 2, that is 2.00%(2 implies semi-annual interest)

nper is the number of coupon interest payable by the bond which 15years multiplied by 2=30

pmt is the semi-annual interest =$500,000*7%*6/12=$17,500

fv is the face value of $500,000

=-pv(2%,30,17500,500000)

=$667,973.42