Question

Leggio Inc. issued bonds with a 30-year maturity one year ago. The bonds have a 7% coupon, make one payment per year, and sold at their $1,000 par value at issue because the going market rate at the time was 7%. Now, one year later, the market rate has declined from 7% to 5%. At what price should Leggio's bonds now sell?

Answer 1

Answer:

$1,302.82

Explanation:

The computation of the price that need to sell the bond is shown below:

Here we calculate the present value for the same

Given that

RATE = 5%

NPER = 30 - 1 = 29

PMT = $1,000 × 7% = $70

FV = $1,000

The formula is shown below:

=-PV(RATE;NPER;PMT;FV;TYPE)

After applying the above formula, the present value is $1,302.82