Sandhill Inc. has seven-year bonds outstanding that pay a 14 percent coupon rate. Investors buying these...

Sandhill Inc. has seven-year bonds outstanding that pay a 14 percent coupon rate. Investors buying these bonds today can expect to earn a yield to maturity of 7.250 percent. What is the current value of these bonds? Assume annual coupon payments. (Round answer to 2 decimal places, e.g. 15.25.)

Expert Solution

Current Value of the Bond

· The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.

· The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.

· Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figures

Par Value/Face Value of the Treasury Note [$1,000,]	FV	1,000
Coupon Amount [$1,000 x 14.00]	PMT	140
Market Interest Rate or Yield to maturity on the Bond [7.25%]	1/Y	7.25
Maturity Period/Time to Maturity [7 Years]	N	7
Treasury Note Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,360.63.

“Hence, the Current Value of the Bond will be $1,360.63”

jeff jeffy answered 3 months ago

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