A 20-year bond pays 6% annually on a face value of $1,000. If similar bonds are currently yielding 4%, what is the market value of the bond?
A) $1,271.40
B) $573.50
C) $770.80
D) Not enough information is given to tell.

Question

Quizplus · Accepted Answer

The bond pays $60 annually (6% of $1,000). To find the market value, we calculate the present value of these cash flows at the current yield of 4%. The bond's market value is higher than its face value because its coupon rate is higher than the current yield.

A 20-Year Bond Pays 6% Annually on a Face Value