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poizon [28]
3 years ago
10

Ryngaert 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 6.8%, at what price should the bonds sell?
$844.62

$979.40

$736.80

$1,006.36

$898.53
Business
1 answer:
tatuchka [14]3 years ago
5 0

Answer:

$898.54

Explanation:

The Price of the Bonds is equal to the Present Value or Fair Value of the Bonds.

Using the Financial Calculator, Input elements will be as follows :

N = 15

pmt = $1,000 × 5.7% = $57

YTM / i = 6.8%

Fv = $1,000

Pv = ?

Pv = $898.54

The Coupon rate is lower than the market rate thus the Bonds will fetch a lower price.

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Answer:

P0 = $9.04279 rounded off to $9.04

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Explanation:

Using the the dividend discount model, we calculate the price of the stock today. It values the stock based on the present value of the expected future dividends from the stock. To calculate the price of the stock today, we will use the following formula,

P0 = D1 / (1+r)  +  D2 / (1+r)^2  +  D3 / (1+r)^3

Where,

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P0 = 4 / (1+0.156)  +  4 / (1+0.156)^2  +  4 / (1+0.156)^3

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