Dull Computer is planning on issuing new bonds with a par value of $1,000, maturing in 10 years and have been rated at AA. The current market rate for AA bonds maturing in 10 years is 8%. Dull Computer has decided to issue these new bonds with an 8% coupon interest rate. At what price should investors being willing to pay for these new Dull Computer bonds?

a. 958.25

b. 1,000.00

c. 1,079.85

d. 1,252.63

e. 1,398.75

Question

Business

Prancer

27 September, 08:57

Dull Computer is planning on issuing new bonds with a par value of $1,000, maturing in 10 years and have been rated at AA. The current market rate for AA bonds maturing in 10 years is 8%. Dull Computer has decided to issue these new bonds with an 8% coupon interest rate. At what price should investors being willing to pay for these new Dull Computer bonds?

a. 958.25

b. 1,000.00

c. 1,079.85

d. 1,252.63

e. 1,398.75

+5

Answers (1)

Know the Answer?

Sanai Park · Answer 1

B,$1000

Explanation:

The price of the bond can be computed using the pv formula in excel which is given below:

=-pv (rate, nper, pmt, fv)

rate is the yield to maturity which is 8%

nper is the time horizon of the bond which is 10 years

pmt is the yearly coupon amount payable by the bond which is 8%*$1000=$80

fv is the face value of $1000

=-pv (8%,10,80,1000)

=$1000

The issue price is $1000 which is the same as par, the quick way out is that when coupon rate and yield are the same, the bond is issued at a par value of $1000