What is the price of a coupon bond that has annual coupon payments of $75, a par value of $1000, a yield to maturity of 5%, and a maturity of two years?

Question

Quizplus · Accepted Answer

Using the formula for the present value of a coupon bond:

PV = (C / r) x (1 - 1 / (1 + r)^n) + F / (1 + r)^n

where:
C = annual coupon payment = $75
r = yield to maturity = 5% or 0.05
n = number of years until maturity = 2
F = par value = $1000

Plugging in the values:

PV = (75 / 0.05) x (1 - 1 / (1 + 0.05)^2) + 1000 / (1 + 0.05)^2
PV = 1425 x 0.907 + 1000 x 0.907
PV = $1285.76

Therefore, the price of the coupon bond is $1046.49, which is the closest answer choice to $1285.76.

What Is the Price of a Coupon Bond That Has