Question

Five years ago Constellation, Inc., sold an issue of 20-year $1000 par bonds to finance a new distribution terminal. The bonds pay 7.0% interest, semi-annually. Today’s required rate of return for similarly rated bonds is 6.7%. How much should these bonds sell for today? (Round off to the nearest $1.)

Answer 1

Answer:

$1,028.11

Explanation:

In this question we use the Present value formula that is presented on the attached spreadsheet

Given that,  

Future value = $1,000

Rate of interest = 6.7%  ÷ 2 = 3.35%

NPER = (20 years - 5 years) × 2 = 30 years

PMT = $1,000 × 7% ÷ 2 = $35

The formula is shown below:

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

So, after solving this, the present value is $1,028.11