Question

Flowers Inc. recently issued noncallable bonds that mature in 15 years. They have a par value of $1,000 and an annual coupon of 5.7%. If the current market interest rate is 7.7%, at what price should the bonds sell?

Answer 1

The answer is $825.63

Step-by-step explanation:

Price of the bond is what the issuer will pay for the bond

Yield-to-maturity is the rate an investor is expecting from his bonds.

Number of years (N) - 15 years

Yield-to-maturity(YTM) - 7.7%

Present Value(price of bond) = ?

Future Value(FV) = $1,000

Payment Coupon(PMT) = $57(5.7% x $1000)

Using a Financial calculator, price of the bond is

=$825.63