If you own a $1,000 face value bond with one year remaining to maturity and a 7 percent coupon rate and new bonds are paying 11 percent,what is the most you can get for your old bond today?

Question

Quizplus · Accepted Answer

To find the most you can get for your old bond today, you need to calculate its present value using the current market rate of 11 percent. 
Using the formula for present value of a bond:
PV = (C/r)[1 - 1/(1+r)^n] + FV/(1+r)^n
where PV is the present value, C is the coupon payment, r is the discount rate or market rate, n is the number of periods, and FV is the face value.
Plugging in the given values:
PV = (70/1.11)[1 - 1/(1.11)^1] + 1000/(1.11)^1
PV = 963.96
Therefore, the most you can get for your old bond today is $963.96, which is choice C.

If You Own a $1,000 Face Value Bond with One