What is the approximate market value for a $1,000 corporate bond that pays 8 percent interest when comparable bonds are paying 9 percent interest?
A)$80
B)$90
C)$889
D)$1,000
E)$1,125

Question

Quizplus · Accepted Answer

To calculate the approximate market value of a bond, we need to use the following formula:
Bond value = (Annual interest payment / Market interest rate) x (1 - 1 / (1 + Market interest rate)^Number of years) + Principal / (1 + Market interest rate)^Number of years

Using the given information, we can calculate the bond value as:
Bond value = (8% of $1,000 / 9%) x (1 - 1 / (1 + 9%)^1) + $1,000 / (1 + 9%)^1 = $88.89 + $1,000 / 1.09 = $977.01

Therefore, the approximate market value of the $1,000 corporate bond is $889. Any other answer is not accurate or rounded up/down incorrectly.

What Is the Approximate Market Value for a $1,000 Corporate