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

Question

Quizplus · Accepted Answer

To calculate the price of a bond, we can use the formula:

Price = (Coupon payment / (1 + yield) ^ years) + (Coupon payment / (1 + yield) ^ years) + ... + (Face value / (1 + yield) ^ years)

In this case, the bond has a 6% coupon payment and a yield to maturity of 7.5%. We also know that the bond has a 10-year maturity, so we can use the formula:

Price = ($60 / 1.075 ^ 1) + ($60 / 1.075 ^ 2) + ... + ($60 / 1.075 ^ 10) + ($1,000 / 1.075 ^ 10)
Price = $897.04

Therefore, the best choice is B.

How Much Should You Be Prepared to Pay for a 10-Year