Question

#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.)

Answer 1

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