How much should you be prepared to pay for a $1,000 10-year bond with an annual coupon of 6% and a yield to maturity of 7.5%?

Question

Quizplus · Accepted Answer

To calculate the price of the bond, we can use the formula:
Price = (Coupon Payment / (1 + Yield)^1) + (Coupon Payment / (1 + Yield)^2) + ... + (Coupon Payment + Face Value) / (1 + Yield)^n
Where:
Coupon Payment = $60 ($1,000 x 6%)
Yield = 7.5%
n = 10 years
Using this formula, the price of the bond comes out to be $897.04. Therefore, the best choice would be option B.

How Much Should You Be Prepared to Pay for a $1,000