If a $1000 par value bond has an 8% coupon (annual payments) rate, a 4-year maturity, and similar bonds are yielding 11%, what is the price of the bond?

Question

Quizplus · Accepted Answer

The bond price is calculated using the present value of its future cash flows, which include annual coupon payments and the par value at maturity. The formula for bond pricing is: Price = (C * (1 - (1 + r)^-n) / r) + (F / (1 + r)^n), where C is the annual coupon payment ($80), r is the yield (11% or 0.11), n is the number of years (4), and F is the face value ($1000). Plugging in these values gives approximately $906.93.

If a $1000 Par Value Bond Has an 8% Coupon