The interest rate on a one-year risk-free bond is 5 percent. BAC Company issued a 5 percent coupon bond with a face value of $1,000, maturing in one year. If the bond is considered risk-free, what is the price of the bond?

Question

Quizplus · Accepted Answer

Since the bond is considered risk-free and its coupon rate matches the risk-free interest rate of 5 percent, it will be priced at par value, which is $1,000. This is because the bond's yield matches the market's required yield for a risk-free bond.

The Interest Rate on a One-Year Risk-Free Bond Is 5