A bond offers an annual coupon rate of 5%, with interest paid semi-annually. The bond matures in seven years. At a market discount rate of 3%, the price of this bond per 100 of Par value is closest to:

Question

Quizplus · Accepted Answer

First, we need to determine the semi-annual coupon payment:
Coupon payment = Face value x Annual coupon rate / 2 
= 100 x 5% / 2 = $2.50

Next, we need to determine the total number of semi-annual periods:
Total periods = 7 years x 2 = 14

Using the formula for the present value of a bond: 
PV = (C / r) x [1 - (1 + r)^-n] + FV / (1 + r)^n 
where: 
C = coupon payment 
r = discount rate per period 
n = total number of periods 
FV = face value

Substituting the values: 
PV = (2.5 / 0.03) x [1 - (1 + 0.03)^-14] + 100 / (1 + 0.03)^14 
= 112.54

Therefore, the price of the bond per 100 of par value is closest to $112.54. Choice B is the correct answer.

A Bond Offers an Annual Coupon Rate of 5%, with Interest