Problem
Large corporations often need to borrow a large amount of money for, say, their expansion projects. Instead of asking for a bank loan, they can decide to borrow in the open market by selling a large number of corporate bonds. The price received from selling each bond becomes a "mini loan" that will then need to be repaid over a number of years.
GIVEN:
1) The corporation issued 8 percent coupon bonds 3 years ago.
2) At that time they had 17 years to maturity.
3) The face value of each is $1,000.
4) They are making semiannual payments to their holders.
5) The yield to maturity on these bonds is 4 percent.
Today, if you wanted to buy such bonds, how much would you be paying for each bond?