Bright Sun Inc sold an issue of 30year 1000 par value bonds

Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 7.25 percent coupon rate and paid interest annually. It is now 6 years later. The current market rate of interest on the Bright Sun bonds is 8.70 percent. What is the current market price (intrinsic value) of the bonds?

Solution

Step 1:

Calculate annual coupon payments: $1000 *7.25% =$72.5

Step 2:

Calculate number of years to maturity: 30-6 = 24 years

Step 3:

Open Excel. Click Formulas – Financial – find function PV

Enter: Rate 8.70%

Nper 25

Pmt 72.5

FV 1000

Type 0

Get the answer $852.38

=PV(8.71%,25,141.4,1000,0)= $852.38