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1. ) You purchased a 20-year bond at par ($1,000) issued 5 years ago, that has an annual coupon of 7%, but rates in the market place for comparable issues have fallen to 4.5% today. If you needed to sell some of these bonds to raise some capital, what would their sale price per bond be today?

Respuesta :

Answer:

The sale price per bond today is $ 1,325.20  

Explanation:

The price is computed by discounting all future cash flows of the bond to present value using the discounting factor 1/(1+r)^N where  r is the yield effective interest rate on the bond of 4.5% and N the relevant year of cash flow as shown in the attached spreadsheet.

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