Assume a two-year maturity bond with a face value of $1,000 and a coupon rate of 10%.If the current market interest rate is i = 8%, we know that the price of this bond will be

Question

Quizplus · Accepted Answer

The bond price is calculated by discounting the future cash flows (coupon payments and face value) at the current market interest rate. The bond pays $100 annually for two years and $1,000 at maturity. The price is $100/(1.08) + $100/(1.08)^2 + $1,000/(1.08)^2 = $1,036.

Assume a Two-Year Maturity Bond with a Face Value of $1,000