Fresh Water, Inc

Finance Apr 19, 2021

Fresh Water, Inc. sold an issue of 18-year $1,000 par value bonds to the public. The bonds have a 7.45 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Water, Inc. bonds is 11.30 percent. What is the current market price of the bonds?

Round the answer to two decimal places.

Expert Solution

Computation of Current Market price of Bonds using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Market Price of Bonds = ?

Rate = 11.30%

Nper = 18 years

PMT = $1,000*7.45% = $74.50

FV = $1,000

Substituting the values in formula:

=-pv(11.30%,18,74.50,1000)

PV or Market Price of Bonds = $708.89

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