Bond price: Giant Electronics is issuing 20-year bonds that will pay coupons semiannually. The coupon rate on this bond is 7.8 percent. If the market rate for such bonds is 7 percent, what will the bonds sell for today? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The bond will sell at a premium because the coupon rate (7.8%) is higher than the market rate (7%). The present value of the bond's cash flows, calculated using the market rate, results in a price of approximately $1,085.

Bond Price: Giant Electronics Is Issuing 20-Year Bonds That Will