Question

TRU Inc. is planning to issue a $1,000 face-value bond with an annual coupon rate of 7.5% that matures in 5 years. TRU is planning to pay quarterly interest payments. Similar TRU bonds are quoting at 97.5% of par. What is the price that bond holders will pay for this bond?

Answer 1

Answer:

$975

Explanation:

Given that,

Face value or par value of bond = $1,000

Annual coupon rate = 7.5%

Maturity period of bond = 5 years

TRU bonds are quoting at 97.5% of par

TRU is planning to pay quarterly interest payments

Now quoting at 97.5% of par:

= Face value × 97.5%

= $1,000 × 97.5%

= $975

Hence, the price that bond holders will pay for this bond is $975.