Twenty years ago Bison Enterprises Inc.issued thirty-year 9% annual coupon bonds with a $1,000 face value each.Since then,interest rates in general have risen and the yield to maturity on the firm's bonds is now 11%.Given this information,what is the price today for a bond from this issue?

Question

Quizplus · Accepted Answer

To calculate the price of the bond today, we need to use the present value formula and discount the future cash flows (i.e., the coupon payments and the face value) by the current yield to maturity. 
PV = C x [1 - (1 / (1 + r)^n)] / r + FV / (1 + r)^n 
where, 
PV = Present value of the bond 
C = Annual coupon payment 
r = Yield to maturity 
n = Number of years remaining until maturity 
FV = Face value of the bond 
Plugging in the given values, we get: 
PV = 90 x [1 - (1 / (1 + 0.11)^30)] / 0.11 + 1000 / (1 + 0.11)^30 
PV = $882.22 
Therefore, the correct answer is (C), $882.22.

Twenty Years Ago Bison Enterprises Inc