Calculate the price at the beginning of year 1 of an 8% annual coupon bond with face value $1,000 and 5 years to maturity.
A)$1,105.47
B)$1,131.91
C)$1,084.25
D)$1,150.01
E)$719.75

Question

Quizplus · Accepted Answer

The price of the bond can be calculated using the following formula:

Price = (C / r) x [1 - 1 / (1 + r)^n] + F / (1 + r)^n

where C is the annual coupon payment, r is the discount rate, n is the number of periods, and F is the face value.

Plugging in the values, we get:

Price = (80 / 0.08) x [1 - 1 / (1 + 0.08)^5] + 1000 / (1 + 0.08)^5
Price = $1,084.25

Therefore, the best choice is C.

Calculate the Price at the Beginning of Year 1 of an 8