Kebt Corporation's Class Semi bonds have a 12-year maturity and an 8.75% coupon paid semiannually (4.375% each 6 months),and those bonds sell at their $1,000 par value.The firm's Class Ann bonds have the same risk,maturity,nominal interest rate,and par value,but these bonds pay interest annually.Neither bond is callable.At what price should the annual payment bond sell?
A)$ 937.56
B)$ 961.60
C)$ 986.25
D)$1,010.91
E)$1,036.18

Question

Quizplus · Accepted Answer

The annual payment bond should sell at the same price as the semiannual bond, which is at par value, $1,000. However, the choices provided do not include $1,000, so the closest option is $986.25, which accounts for the difference in compounding periods.

Kebt Corporation's Class Semi Bonds Have a 12-Year Maturity and an 8.75