Giant electronics is issuing 20-year bonds that will pay coupons semiannually. the coupon rate on this bond is 7.8 percent. if the market rate for such bonds is 7 percent, what will the bonds sell for today? (do not round intermediate computations. round your final answer to the nearest dollar.) $1,085 $861 $1,037 $923

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Business

Marshmallow

3 August, 18:50

Giant electronics is issuing 20-year bonds that will pay coupons semiannually. the coupon rate on this bond is 7.8 percent. if the market rate for such bonds is 7 percent, what will the bonds sell for today? (do not round intermediate computations. round your final answer to the nearest dollar.) $1,085 $861 $1,037 $923

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Marge · Answer 1

Given:

Years to maturity = n = 20

Coupon rate = C = 7.8%

Frequency of payment = m = 2

Semiannual coupon = $1,000 * (0.078/2) = $39.00

Current market rate = i = 7%

Present value of bond = P

Price of bond = 0.078 x 1000 x (1 - (1 + 0.07) ^-20/0.07 + 1000 / (1.07) ^20 = 78 x 10.60 = 826.33 + 258.42 = 1,084.75

The correct answer is: $1,085