If the market interest rate is 10%, what is the price of a one-year maturity bond with a 15% coupon rate and a face value of $4,400?

Question

Quizplus · Accepted Answer

The price of the bond can be calculated using the formula for the present value of its future cash flows, which includes the coupon payment and the face value repayment at maturity. The coupon payment is 15% of $4,400, which is $660. The bond pays this once since it's a one-year bond, and repays the face value of $4,400 at the end of the year. The present value of these cash flows, discounted at the market interest rate of 10%, is calculated as follows: $660 / (1 + 0.10) + $4,400 / (1 + 0.10) = $600 + $4,000 = $4,600.

If the Market Interest Rate Is 10%, What Is the Price