In 1995 Marcia bought a 30 year bond for $2,000. This bond pays $200. in interest...

Question

Question

In 1995 Marcia bought a 30 year bond for $2,000. This bond pays $200. in interest...

In 1995 Marcia bought a 30 year bond for $2,000. This bond pays $200. in interest

each year. Marcia plans to sell this bond in June of 2005. Twenty year bonds with

similar risk to the bond owned by Marcia are paying an annual interest rate of 5%. What

price can Marcia expect to receive when she sells her bond? Explain. ($4,000)

business finance

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Answer 1

Answer #1

The selling price of the Bond

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figures

Par Value/Face Value of the Bond [$2.000]	FV	2,000
Coupon Amount [$200]	PMT	200
Market Interest Rate or Yield to maturity on the Bond [5.00%]	1/Y	5.00
Maturity Period/Time to Maturity [20 Years]	N	20
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $3,246.22.

“Hence, the selling price of the Bond will be $3,246.22”

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Answer 2

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In 1995 Marcia bought a 30 year bond for $2,000. This bond pays $200. in interest...

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In 1995 Marcia bought a 30 year bond for $2,000. This bond pays $200. in interest...

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Add Answer to: In 1995 Marcia bought a 30 year bond for $2,000. This bond pays $200. in interest...

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