A bond with two years remaining until maturity offers a 3% coupon rate with interest paid annually. At a market discount rate of 4%, the price of this bond per 100 of par value
Is closest to:
A) 95.34.
B) 98.00.
C) 98.11.

Question

Quizplus · Accepted Answer

Using the formula for bond price: 
Price = [C / r * (1 - 1 / (1 + r)^n)] + FV / (1 + r)^n 
where C is the annual coupon payment, r is the market discount rate, n is the number of years remaining until maturity, and FV is the face value of the bond.

Plugging in the given values: 
Price = [3 / 0.04 * (1 - 1 / (1 + 0.04)^2)] + 100 / (1 + 0.04)^2 
Price = 98.11

Therefore, the closest answer choice is C, 98.11.

A Bond with Two Years Remaining Until Maturity Offers a 3