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?

Question

Business

Cory Cameron

31 March, 04:46

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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Answers (1)

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Villarreal · Answer 1

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