#3) Seven years ago, Crane Corporation issued 20-year bonds that had a $1,000 face value, paid interest annually, and had a coupon rate of 8 percent. If the market rate of interest is 4.0 percent today, what is the current market price of an Crane Corporation bond? (Round intermediate calculations to 5 decimal places, e.g. 1.25145 and final answer to 2 decimal places, e.g. 52.75.)
Bonds are financial instruments that provide fixed returns to their holders. Bonds actually have a nature of debt with a fixed interest rate and a maturity, also known as Plain Vanilla Bond.
The Price of a bond can be calculated as:
Where C denotes the Coupon Amount or 8% of $ 1,000 = $ 80
r denotes the Yield to Maturity or 4%
n denotes the Time to Maturity or 13
Substituting the values, calculate the Price:
Thus, the current price of the Bond is $ 1,399.43
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