Question

One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 6% annual coupon bonds at their par value of $1,000. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity?

Select the correct answer.

a. $1,047.95

b. $1,055.29

c. $1,062.63

d. $1,051.62

e. $1,058.96

Answer 1

a) $1,047.95
Statement showing Computations
Paticulars	Amount
PV of Coupon payments = 60*9.58965	575.38
PV of Face value to be received at end of 14 Years = 1000*.47257	472.57
Market price of bond	1,047.95
Time	PVF at 5.5%
1.00	0.94787
2.00	0.89845
3.00	0.85161
4.00	0.80722
5.00	0.76513
6.00	0.72525
7.00	0.68744
8.00	0.65160
9.00	0.61763
10.00	0.58543
11.00	0.55491
12.00	0.52598
13.00	0.49856
14.00	0.47257
PVF for 14 Years	9.58965