Question

Ryngaert Inc. recently issued noncallable bonds that mature in 15 years. They have a par value of $1,000 and a coupon rate of 10.0%. The bonds pay coupons semi-annually. If the current market interest rate is 8.0%, at what price should the bonds sell?

Answer 1

If the current market interest rate is 8.0%, the bond price should be $1,172.92.

What is the present value of the bonds?

We can use the online finance calculator to calculate the present value (PV) or price that the bonds should be issued at, based on an effective market interest rate of 8% for a period of 30 (15 years x 2).

Data and Calculations:

Noncallable bonds' par value = $1,000

Maturity period = 15 years

Interest payment = semi-annually

Coupon interest rate = 10%

Current market interest rate = 8%

N (# of periods) = 30 (15 x 2)

I/Y (Interest per year) = 8%

PMT (Periodic Payment) = $50 ($1,000 x 10% x 1/2)

FV (Future Value) = $1,000

Results:

PV = $1,172.92

Sum of all periodic payments = $1,500 ($50 x 15 x 2)

Total Interest = $1,327.08

Thus, if the current market interest rate is 8.0%, the bond price should be $1,172.92.

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