Question

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

Answer 1

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.