Assume a company has an issue of 19-year $1,000 par value bonds that pay 4.5% interest,...

Assume a company has an issue of 19-year $1,000 par value bonds that pay 4.5% interest, compounded annually. Further assume that today's required rate of return on these bonds is 6%. How much would these bonds sell for today? Round to two decimal places.

To answer the question:

(1) Describe and interpret the assumptions related to the problem.

(2) Apply the appropriate mathematical model to solve the problem.

(3) Calculate the correct solution to the problem.

Solutions

Expert Solution

Calculating Price of Bond,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 45, N = 19, I = 0.06]

PV = $832.63

Bond Price = $832.63

jeff jeffy answered 2 years ago

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