King Noodles' bonds have a 7.5% coupon rate. Interest is paid quarterly and the bonds have a maturity of eight years. If the appropriate discount rate is 8% on similar bonds, what is the price of King Noodles' bonds?

A) $970.66
B) $970.87
C) $971.27
D) $989.63
E) $993.27

Question

Anthony Nguyen · Accepted Answer

Final Answer : A, Explanation :  The correct answer is A because the price of King Noodles' bonds is $970.66. This is calculated using the following formula:Bond Price = (C * (1 - (1 + r)^-n)) / r + (FV / (1 + r)^n)Where:C = coupon paymentr = discount raten = number of periodsFV = face valueIn this case, the coupon payment is $7.50, the discount rate is 8%, the number of periods is 32 (8 years * 4 quarters per year), and the face value is $1,000. Plugging these values into the formula, we get:Bond Price = (7.50 * (1 - (1 + 0.08)^-32)) / 0.08 + (1,000 / (1 + 0.08)^32)= (7.50 * (1 - 0.46319)) / 0.08 + (1,000 / 2.1589)= (7.50 * 0.53681) / 0.08 + 463.63= 37.261 / 0.08 + 463.63= 465.76 + 463.63= $970.66

King Noodles' bonds have a 7.5% coupon rate. Interest is paid quarterly and the bonds have a maturity of eight years. If the appropriate discount rate is 8% on similar bonds, what is the price of King Noodles' bonds?

A) $970.66
B) $970.87
C) $971.27
D) $989.63
E) $993.27

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Learning Objectives

Related questions

King Noodles' bonds have a 7.5% coupon rate. Interest is paid quarterly and the bonds have a maturity of eight years. If the appropriate discount rate is 8% on similar bonds, what is the price of King Noodles' bonds?A) $970.66B) $970.87C) $971.27D) $989.63E) $993.27

Definitions

Learning Objectives

Learning Objectives

Related questions

King Noodles' bonds have a 7.5% coupon rate. Interest is paid quarterly and the bonds have a maturity of eight years. If the appropriate discount rate is 8% on similar bonds, what is the price of King Noodles' bonds?

A) $970.66
B) $970.87
C) $971.27
D) $989.63
E) $993.27