Question

McCurdy Co.'s Class Q bonds have a 12-year maturity, $1,000 par value, and a 5.75% coupon paid semiannually (2.875% each 6 months), and those bonds sell at their par value. McCurdy's Class P bonds have the same risk, maturity, and par value, but the P bonds pay a 5.75% annual coupon. Neither bond is callable.

At what price should the annual payment bond sell?a. $943.98b. $968.18c. $1,043.28d. $1,017.83e. $993.01

Answer 1

Answer:

$993.01

Explanation:

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

The NPER represents the time period.

Given that,  

Future value = $1,000

Rate of interest = {1 + (5.75% ÷ 2)^2 - 1 = 5.83%

NPER = 12 years

PMT = $1,000 × 5.75 = $57.50

The formula is shown below:

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

So, after solving this, the answer would be $993.01