A 10-year bond pays 5% on a face value of $1,000. If similar bonds are currently yielding 10%, what is the market value of the bond? Use annual analysis.
A) $693.25
B) $386.00
C) $3,390.85
D) $1,386.09

Question

Quizplus · Accepted Answer

The market value of the bond is calculated by discounting the bond's cash flows (annual coupon payments and the face value at maturity) at the current market yield of 10%. The bond pays $50 annually for 10 years and $1,000 at maturity. The present value of these cash flows at a 10% discount rate is approximately $693.25.

A 10-Year Bond Pays 5% on a Face Value of $1,000