Dhalia Corporation issued $100 million bonds that mature in 30 years and have a 5% coupon rate that is paid annually. If the bonds were sold to yield 3.4%, determine the price of the bonds at the
End of year 25.

Question

Quizplus · Accepted Answer

The price of the bond is calculated using the present value of future cash flows, which include the annual coupon payments and the face value at maturity, discounted at the yield rate of 3.4%. At the end of year 25, there are 5 years remaining, so the bond price is the present value of 5 annual coupon payments of $5 million each and the $100 million face value, all discounted at 3.4%.

Dhalia Corporation Issued $100 Million Bonds That Mature in 30