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Minchanka [31]
3 years ago
14

Watson consulting, llc is a consultancy to consultants. They have bonds which have a face value of $1,000. The bonds carry a 3.5

percent semi-annual coupon, and mature in 10 years. What is the current price of these bonds if the yield to maturity (the going market rate, rd) is 5 percent
Business
1 answer:
Montano1993 [528]3 years ago
3 0

Answer:

The current market price is $ 883.08  

Explanation:

The current market price can be ascertained using the pv excel function as follows:

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

rate is the semiannual yield to maturity which is 5%/2

nper is the number of semiannual coupons in the bond i.e 10*2=20

pmt is the semiannual coupon=3.5%*1/2*$1000=$17.5

fv is the face value of the bond

=-pv(5%/2,20,17.5,1000)=$ 883.08  

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Answer: $294,000

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Gift of $91,000 is <u>purpose restricted</u> as it must be used for the purpose of salaries.

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3 years ago
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