A government bond issued in France has a coupon rate of 5 percent, a face value of 100 euros, and matures in five years. The bond pays annual interest payments. Calculate the price of the bond (in euros)if the yield to maturity is 3.5 percent.

Question

Quizplus · Accepted Answer

To calculate the price of the bond, we can use the formula:

Price = (Coupon payment / (1 + Yield)^1) + (Coupon payment / (1 + Yield)^2) + ... + (Coupon payment + Face value / (1 + Yield)^n)

where n is the number of years until maturity.

Substituting in the given values:

Price = (5 / (1 + 0.035)^1) + (5 / (1 + 0.035)^2) + (5 / (1 + 0.035)^3) + (5 / (1 + 0.035)^4) + (5 + 100 / (1 + 0.035)^5)
Price = 106.77 euros

Therefore, the best choice is B.

A Government Bond Issued in France Has a Coupon Rate