Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

To determine the price you are willing to pay for the bond, you need to calculate the present value of the future cash flows (coupon payments and final payment of principal) discounted at the market rate. Using a financial calculator, the present value of a 6.375% annual coupon payment for five years at an 8.5% market rate is $26.50. The present value of the final payment of principal is $799.09. Adding these two present values, we get a total present value of $825.59. Therefore, the price you would be willing to pay for Triumph's bond today is $916.