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The International Publishing Group is raising $10 million by issuing 15-year bonds with a coupon rate...

The International Publishing Group is raising $10 million by issuing 15-year bonds with a coupon rate of 8.93 percent. Coupon payments will be made annually. Investors buying the bonds today will earn a yield to maturity of 8.93 percent. At what price will the bonds sell in the marketplace? Explain. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25.)

Sale value $
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Answer #1

Let us say the face value of each bond is $1,000.

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Price of bond is calculated using PV function in Excel :

rate = 8.93% (YTM of bonds = market interest rate)

nper = 15 (Years remaining until maturity with 1 coupon payment each year)

pmt = 1000 * 8.93% (annual coupon payment = face value * coupon rate)

fv = 1000 (face value receivable on maturity)

PV is calculated to be $1,000.00

Price of each bond = $1,000.00

Sale value of bond issue = $10 million

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