Suppose a Canada Savings Bond will mature in 3 years.If the bond pays a coupon of $100 per year and will make a final par value payment of $3000 at maturity,what is its price if the relevant market interest rate is 7%?

Question

Quizplus · Accepted Answer

To calculate the bond's price, we need to use the present value formula:
Price = (coupon payment / (1 + interest rate)^1) + (coupon payment / (1 + interest rate)^2) + (coupon payment + par value/ (1 + interest rate)^3)

Plugging in the given values:
Price = (100 / (1 + 0.07)^1) + (100 / (1 + 0.07)^2) + (3000 / (1 + 0.07)^3)
Price = 92.52 + 86.51 + 2532.30
Price = $2711.33

Suppose a Canada Savings Bond Will Mature in 3 Years