Answer:
$ 930.20
Explanation:
We need to first of all determine the yield to maturity using excel rate function:
=rate(nper,pmt,-pv,fv)
nper is the number of annual coupons i.e 25
pmt is the annual coupon=face value*coupon rate=$1000*8.5%=$85
pv is the current market price of $925
fv is the face value of $1000
=rate(25,85,-925,1000)=9.28%
In 5 years time,the bond would have 20 years remaining to maturity, as a result, only 20 years coupon would be left to be paid.
The formula for bond price is excel pv function given below:
=-pv(rate,nper,pmt,fv)
=-pv(9.28% ,20,85,1000)=$ 930.20
