You have purchased a 4-year maturity bond with a 9% coupon rate paid annually.The bond has a par value of $1,000.What would the price of the bond be one year from now if the implied forward rates stay the same?

Question

Quizplus · Accepted Answer

The correct answer is A because the price of the bond one year from now will be $995.63. This is because the bond has a 9% coupon rate, which means that the bondholder will receive $90 in interest payments each year. The bond also has a par value of $1,000, which means that the bondholder will receive $1,000 when the bond matures in four years. The price of the bond one year from now will be the present value of the future cash flows, which is $995.63.

You Have Purchased a 4-Year Maturity Bond with a 9