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2 December, 02:19

Flowers Inc. recently issued noncallable bonds that mature in 15 years. They have a par value of $1,000 and an annual coupon of 5.7%. If the current market interest rate is 7.7%, at what price should the bonds sell?

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  1. 2 December, 02:20
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    The answer is $825.63

    Explanation:

    Price of the bond is what the issuer will pay for the bond

    Yield-to-maturity is the rate an investor is expecting from his bonds.

    Number of years (N) - 15 years

    Yield-to-maturity (YTM) - 7.7%

    Present Value (price of bond) = ?

    Future Value (FV) = $1,000

    Payment Coupon (PMT) = $57 (5.7% x $1000)

    Using a Financial calculator, price of the bond is

    =$825.63
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