A bond is scheduled to mature in five years.Its coupon rate is 9 percent with interest paid annually.This $1,000 par value bond carries a yield to maturity of 10 percent.What is the bond's current market price?

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Quizplus · Accepted Answer

The bond's current market price can be calculated using the present value of its future cash flows, which include the annual coupon payments and the par value at maturity. The formula for the present value of a bond is: $$ P = \sum \left( \frac{C}{(1 + r)^t} \right) + \frac{F}{(1 + r)^n} $$Where:- $ C $ is the annual coupon payment ($1,000 * 9% = $90),- $ r $ is the yield to maturity (10% or 0.10),- $ F $ is the face value of the bond ($1,000),- $ n $ is the number of years to maturity (5).Calculating this gives a present value of approximately $962.09, which corresponds to choice A.

A Bond Is Scheduled to Mature in Five Years