Question

Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 11%, and the yield to maturity is 13%. What is the bond's current market price? Round your answer to the nearest cent.

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Answer 1

Information provided:

Par value= future value= $1,000

Time= 23 years

Coupon rate= 11%

Coupon payment= 0.11*1,000= $110

Yield to maturity= 13%

The current price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 23

PMT= 110

I/Y= 13

Press the CPT key and PV to compute the present value.

The value obtained is 855.41.

Therefore, the current price of the bond is $855.41.