The Lo Sun Corporation offers a 6.3 percent bond with a current market price of $767.50. The yield to maturity is 8.49 percent.
The face value is $1,000. Interest is paid semiannually. How many years until this bond matures
1 answer:
Answer:
27.85 years
Explanation:
In this question we use the NPER formula that is shown in the spreadsheet
Provided that
Present value = $767.50
Future value = $1,000
Rate of interest = 8.49% ÷ 2 = 4.25%
PMT = $1,000 × 6.3% ÷ 2 = $31.50
The formula is shown below:
= NPER(Rate;PMT;-PV;FV;type)
The present value come in negative
So, after solving this, the number of years is 55.71
But in this case, it would be
= 55.71 ÷ 2
= 27.85 years
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Answer:
b. $299,574
Explanation:
For calculating the ask price, we first need to compute the present value which is attached in the spreadsheet.
In this question, we use the present value formula which is shown in the spreadsheet.
The NPER represents the time period.
Given that,
Future value = $0
Rate of interest = 7.5%
NPER = 25 years - 1 years = 24 years
PMT = $25,000
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after solving this, the present value is $278,673.65
Now the ask price is
= $274,574.17 + $25,000
= $299,574.17
