Annual coupon=1000*7.5%=75
Hence current price=Annual coupon*Present value of annuity factor(8%,23)+$1000*Present value of discounting factor(8%,23)
=75*10.3710589+1000*0.170315284
=$948.14(Approx).
NOTE:
1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=75[1-(1.08)^-23]/0.08
=75*10.3710589
2.Present value of discounting factor=1000/1.08^23
=1000*0.170315284
Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually, they have a...
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