A Government of Ontario bond has seven years remaining to maturity. The face value is $1,000, the annual coupon rate is 8% (payable in semiannual instalments) and the current market rate of return is 6% compounded semiannually. What is the market value of the bond?

Question

Quizplus · Accepted Answer

The market value of the bond is calculated using the present value of its future cash flows, which include the semiannual coupon payments and the face value at maturity. With a coupon rate of 8% and a market rate of 6% compounded semiannually, the bond's market value is higher than its face value, resulting in a price of $1,113.

A Government of Ontario Bond Has Seven Years Remaining to Maturity