J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 7%. If the bond has a life of 30 years, pays annual coupons, and the yield to maturity is 6.8%, what will the bond sell
For?

Question

Quizplus · Accepted Answer

To calculate the price of the bond, we can use the formula:
Bond Price = (C / r) * [1 - (1 / (1 + r)^n)] + F / (1 + r)^n
Where:
C = coupon payment = 0.07 * $1,000 = $70
r = yield to maturity = 0.068
n = number of periods = 30
F = face value = $1,000

Plugging in the values, we get:
Bond Price = ($70 / 0.068) * [1 - (1 / (1 + 0.068)^30)] + $1,000 / (1 + 0.068)^30
Bond Price = $1,025.32

Therefore, the best choice is C.

J&J Manufacturing Just Issued a Bond with a $1,000 Face