When the interest rate is 10 percent, what is the price of a bond that matures in one year, has a $300 face value, and has a coupon of $20 per year?

Question

Quizplus · Accepted Answer

The price of a bond is calculated by discounting the future cash flows (coupon payments and the face value) back to their present value. In this case, the bond has a coupon of $20 and will pay the face value of $300 at maturity in one year. The total cash flow in one year is $320 ($20 coupon + $300 face value). To find the present value (price of the bond), we use the formula: Present Value = Future Cash Flow / (1 + interest rate). Plugging in the numbers: Price = $320 / (1 + 0.10) = $320 / 1.10 = $290.90.

When the Interest Rate Is 10 Percent, What Is the Price