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Strong Corporation has issued $1,000 par value, 20 year, 8% bonds paying semi-annual interest. If the market rate of interest for bonds of similar risk is 6%, what is the current market price of the bonds?

Respuesta :

jepessoa

Answer:

$1,229.40

Explanation:

to determine the price of the cond we must calculate its the present value:

  • the interest paid by the bond is $80 = $1,000 x 8%
  • r = 6%
  • the first 19 payments produce a cash flow of $80, and the last one produces a cash flow of $1,080 (coupon + face value)

we can use an excel spreadsheet and the present value formula =NPV (6%, 80,80 ... 80, 1080) = $1,229.40

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