One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 5.9% annual coupon bonds at their par value of $1,000. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity? Select the correct answer. a. $1,043.24 b. $1,045.68 c. $1,038.36 d. $1,040.80 e. $1,035.92
Information provided:
Par value= future value= $1,000
Coupon rate= 5.9%
Coupon payment= 0.059*1,000= $59
Time= 14 years
Market interest rate= 5.50%
The current price of the bonds is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
FV= 1,000
PMT= 59
N= 14
I/Y= 5.50
Press the CPT key and PV to compute the present value.
The value obtained is 1,038.36.
Therefore, the current price of the bonds is $1,038.36.
Hence, the answer is option c.
In case of any query, kindly comment on the solution.
Get Answers For Free
Most questions answered within 1 hours.