Question

Mark Harris just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Cullumber Corp. that pays an annual coupon rate of 4.5 percent. If the current market rate is 7.50 percent, what is the maximum amount Mark should be willing to pay for this bond? (Round answer to 2 decimal places, e.g. 15.25.) Mark should pay $enter the maximum amount that should be paid rounded to 2 decimal places

Answer 1

Ans:- In this question, we need to find the Present Value of the Bond. we will use the PV function of excel to find the answer. assume Par value or face value of the bond is $1,000

Rate=7.5%, Nper=5, Pmt=$1,000 * 4.5%=$45, FV = $1,000

Therefore the maximum amount that should be paid for the bond will be $878.62

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