Thomson Inc has a $1,000, 6% coupon bond with interest payable semiannually and a remaining term of 20 years. The market yield on similar bonds is 10%. What percentage of face value is the bond selling for today?

Question

Quizplus · Accepted Answer

The bond's price is calculated using the present value of its cash flows, which include semiannual coupon payments and the face value at maturity. With a 6% annual coupon rate, the semiannual coupon is $30. The market yield is 10% annually, or 5% semiannually. Using the present value formula for bonds, the bond sells for approximately 65.68% of its face value.

Thomson Inc Has a $1,000, 6% Coupon Bond with Interest