What is the price of a 4-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)
A)$742.09
B)$1,222.09
C)$1,035.66
D)$1,141.84
E)none of the above

Question

Quizplus · Accepted Answer

We can use the Bond Pricing Formula to find the price of the bond:
Price = (Coupon payment / (1 + i)^1) + (Coupon payment / (1 + i)^2) + (Coupon payment / (1 + i)^3) + (Coupon payment + Par value / (1 + i)^4)
Where:
Coupon payment = $1000 x 10% = $100
Par value = $1000
i = Yield to maturity
n = 4 (number of years until maturity)

Since the coupon rate is the same as the yield to maturity, we know that the bond is being sold at par. Therefore, yield to maturity = Coupon rate = 10%

Price = ($100 / 1.10^1) + ($100 / 1.10^2) + ($100 / 1.10^3) + ($1000 / 1.10^4) = $1,035.66

Therefore, the answer is C.

What Is the Price of a 4-Year Maturity Bond with a 10