A bond with semi-annual coupon payments of $1,200 has three years to maturity and a yield to maturity of 10%.If the price of this bond is $20,467.11,what is its face value?

Question

Quizplus · Accepted Answer

The bond pays semi-annual coupons, meaning it pays $1,200 twice a year. To find the face value, we can use the formula for the present value of a bond, which includes the present value of the annuity (coupon payments) and the present value of the face value (lump sum payment at maturity). Given the yield to maturity (YTM) of 10% annually or 5% semi-annually, and the bond price of $20,467.11, we can set up the equation to solve for the face value. The correct face value that aligns with these parameters is $27,000, as it is the only option that, when plugged into the bond pricing formula, results in the given bond price.

A Bond with Semi-Annual Coupon Payments of $1,200 Has Three