EAC Nutrition offers a 9.5 percent coupon bond with annual payments,maturing 11 years from today.Your required return is 11.2 percent.What price are you willing to pay for this bond if the face (or par)value is $1,000?

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Quizplus · Accepted Answer

The correct answer is A because the price of the bond is $895.43. This is calculated using the following formula:Bond Price = Present Value of Future Cash Flows / (1 + Required Return)^nWhere:Present Value of Future Cash Flows = $1,000 * (1 - (1 + 0.112)^-11) / 0.112Required Return = 11.2%n = 11 yearsPlugging these values into the formula, we get:Bond Price = $1,000 * (1 - (1 + 0.112)^-11) / 0.112= $1,000 * (1 - 0.3605) / 0.112= $1,000 * 0.6395 / 0.112= $895.43

EAC Nutrition Offers a 9