If a $1,000 par value bond has a coupon rate of 6% with interest paid semi-annually, a maturity of 12 years, and a yield-to-maturity of 7%, what is the current price of this bond?
A) $919.71
B) $989.71
C) $1014.71
D) $1062.71

Question

Quizplus · Accepted Answer

The bond's price can be calculated using the present value of its future cash flows, which include semi-annual coupon payments and the par value at maturity. The coupon payment is $30 (6% of $1,000 divided by 2), and the yield per period is 3.5% (7% divided by 2). The bond has 24 periods (12 years times 2). Using the formula for the present value of an annuity and the present value of a lump sum, the bond's price is approximately $919.71.

If a $1,000 Par Value Bond Has a Coupon Rate