Question

Gugenheim, Inc. needs to finance the purchase of yet another masterpiece. To this end, the company is selling some bonds that were donated by a wealthy donor. The bonds have a 10.00 percent annual coupon. The yield to maturity is 5.4 percent and the bonds mature in 7 years. What is the market price of a $1,000 face value bond? Assume the next coupon is received in one year.

Answer 1

$1,262.36

Step-by-step explanation:

In this question, we use the PV formula which is shown in the spreadsheet.

The NPER represents the time period.

Given that,

Future value = $1,000

PMT = 1,000 × 10% = $100

NPER = 7 years

Rate of interest = 5.4%

The formula is shown below:

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

So, after solving this, the present value would be $1,262.36