Question

Caldwell, Inc. sold an issue of 30-year, $1,000 par value bonds to the public. The bonds carry a 10.85% coupon rate and pay interest semiannually. It is now 12 years later. The current market rate of interest on the Caldwell bonds is 8.45%.
What is the current market price of the bonds? (Round to the nearest dollar.)

The answer is 1220. How to use calculator to get this answer?

Answer 1

Answer:

$1,220

Explanation:

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 = $1,000

Rate of interest = 8.45% ÷ 2 = 4.225%

NPER = 30 years - 12 years  = 18 year × 2 = 36 years

PMT = $1,000 × 10.85% ÷ 2  = $54.25

The formula is shown below:

= -PV(Rate,NPER,PMT,FV,type)

So, after solving this, the answer would be $1,220