Katie pairy fruits inc has a 1000 20-year bond outstanding, Ask an Expert

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Katie Pairy Fruits Inc. has a $1,000, 20-year bond outstanding with a nominal yield of 15 percent (coupon equals 15% × $1,000 = $150 per year). Assume that the current market-required interest rate on similar bonds is now only 12 percent.

a. Compute the current price of the bond.

b. Find the present value of 3 percent × $1,000 (or $30) for 20 years at 12 percent. The $30 is assumed to be an annual payment. Add this value to $1,000.

c. Explain why the answers in parts a and b are basically the same. (There is a slight difference due to rounding in the tables.)

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Financial Management, Finance

Category:- Financial Management
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