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12 February, 17:15

Grossnickle Corporation issued 20-year, noncallable, 7.5% annualcouponbonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 19 years to maturity?

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  1. 12 February, 17:17
    0
    current price of the bond is $1,232.15

    Explanation:

    given data

    time N = 20 year

    annual coupon bonds = 7.5%

    future value = $1,000

    interest rate = 5.5%

    NPER = 19 year

    solution

    we will use here Present value formula to get current price of the bond.

    so here PMT will be

    PMT = future value * rate

    PMT = 1000 * 7.5 %

    PMT = $75

    so we use here formula in excel that is

    = - PV (Rate, NPER, PMT, FV, type)

    put here value and we get

    after solving we get current price of the bond is $1,232.15
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