Katie Pairy Fruits Incorporated has a $3,400 13-year bond outstanding with a nominal yield of 15 percent (coupon equals 15% × $3,400 = $510 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Compute the current price of the bond.

To find the current price of the bond, we use the **present value of a bond** formula. A bond's price is the sum of:

1. The **present value of the coupon payments** (which are an annuity),
2. The **present value of the face value** (a lump sum to be paid at maturity).

The formula for the bond price is:

\[
\text{Price of Bond} = \left( \sum_{t=1}^{n} \frac{C}{(1 + r)^t} \right) + \frac{F}{(1 + r)^n}
\]

Where:
- $ C = \text{Coupon payment} = 510 \text{ USD per year} $
- $ r = \text{Market interest rate} = 12\% \text{ or } 0.12 $
- $ F = \text{Face value of the bond} = 3,400 \text{ USD} $
- $ n = \text{Number of years to maturity} = 13 $

Let's break it down and calculate the bond price.The current price of the bond is approximately **$4,055.20**.

Would you like a detailed breakdown of the calculation process or have any further questions?

Here are 5 related questions to deepen your understanding:
1. How does the bond price change if the market interest rate increases?
2. What happens to the bond price if the number of years to maturity decreases?
3. How would the bond price differ if the coupon rate were 10% instead of 15%?
4. Can you explain how market interest rates affect bond prices in general?
5. What is the difference between nominal yield and yield to maturity?

**Tip:** Bond prices and interest rates are inversely related. When interest rates rise, bond prices fall, and vice versa.

Learn how to compute the current price of a 13-year bond with a face value of $3,400, a coupon rate of 15%, and a market interest rate of 12%. This guide covers bond pricing concepts, present value calculations, and provides a detailed step-by-step solution. Suitable for undergraduate finance students.

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