Question

Edward Lewis just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Sunland Corp. that pays an annual coupon rate of 4.5 percent. If the current market rate is 10.00 percent, what is the maximum amount Edward should be willing to pay for this bond

Answer 1

$791.51

Step-by-step explanation:

PMT = 45%

Fv = -1000

N = 5

Rate = 10%

Using the Excel funtion

Bond Price = PV(45, -1000, 5, 10)

Bond Price = $791.51

Hence, the maximum amount Edward should be willing to pay for this bond is $791.51