Question

Madsen Motors's bonds have 21 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 12%, and the yield to maturity is 15%. What is the bond's current market price

Answer 1

$810.63

Step-by-step explanation:

For computing the current market price we need to use the present value formula i.e to be shown in the attachment below

Provided that,

Future value = $1,000

Rate of interest = 15%

NPER = 21 years

PMT = $1,000 × 12% = $120

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the bond current market price is $810.63