$1000 face value bond has an 8% coupon,with coupons paid and compounded annually,and a 4-year maturity.With similar bonds yielding 11%,what is the current market price of the bond?

Question

Quizplus · Accepted Answer

The current market price of the bond is calculated by discounting the future cash flows (coupon payments and face value) at the market yield rate of 11%. The formula for the present value of a bond is: $ P = \sum \frac{C}{(1 + r)^t} + \frac{F}{(1 + r)^n} $, where $ C $ is the annual coupon payment ($80), $ r $ is the yield (0.11), $ F $ is the face value ($1000), and $ n $ is the number of years (4). Calculating this gives approximately $906.93.

$1000 Face Value Bond Has an 8% Coupon,with Coupons Paid