Grossnickle Corporation issued 20-year, noncallable, 7.5% annualcouponbonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 19 years to maturity?

current price of the bond is $1,232.15

Explanation:

given data

time N = 20 year

annual coupon bonds = 7.5%

future value = $1,000

interest rate = 5.5%

NPER = 19 year

solution

we will use here Present value formula to get current price of the bond.

so here PMT will be

PMT = future value * rate

PMT = 1000 * 7.5 %

PMT = $75

so we use here formula in excel that is

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

put here value and we get

after solving we get current price of the bond is $1,232.15