To the nearest dollar, what is the current price of an 8%, $1,000 annual coupon bond that has sixteen years to maturity and a yield to maturity of 7.00%?
A) $1,094
B) $1,000
C) $911
D) $701

Question

Quizplus · Accepted Answer

The price of a bond can be calculated using the formula for the present value of its future cash flows, which include the annual coupon payments and the face value of the bond. The annual coupon payment is 8% of $1,000, which equals $80. The present value of these coupon payments, discounted at the yield to maturity of 7%, plus the present value of the $1,000 face value of the bond, also discounted at the yield to maturity, gives the current price of the bond. Using the formula for the present value of an annuity for the coupon payments and the formula for the present value of a single sum for the face value, the calculation results in a price of approximately $1,094.

To the Nearest Dollar, What Is the Current Price of an 8