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

Explanation:

Assuming the face value is $1,000

Coupon payment = 1000 x 7.8% = $78 annually = $39 semiannually

Number of periods = n = 20 years x 2 = 40 periods

Yield to maturity = 7% annually = 3.5% semiannually

Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Price of the Bond =$39 x [ ( 1 - ( 1 + 3.5% )^-40 ) / 3.5% ] + [ $1,000 / ( 1 + 3.5% )^40 ]

Price of the Bond = $39 x [ ( 1 - ( 1.035 )^-40 ) / 0.035 ] + [ $1,000 / ( 1.035 )^40 ]

Price of the Bond = $832.85 + $252.57

Price of the Bond = $1,085.42

i think the answer to your question is b. directive

false! basically!

i hope i'm correct.