Suppose the current market interest rate is 10.25 percent.What is the current market price of a 5-year bond with a face value of $1,000 that has a coupon rate of 14 percent with semi-annual coupon payments?

Question

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The bond's price is calculated using the present value of its future cash flows, which include semi-annual coupon payments and the face value at maturity. With a coupon rate of 14%, the bond pays $70 every six months. The market interest rate is 10.25% annually, or 5.125% semi-annually. Using these inputs in a financial calculator, the present value of the bond's cash flows is $1,154.43.

Suppose the Current Market Interest Rate Is 10