A 25-year,$1,000 par value bond has an 8.5% annual coupon.The bond currently sells for $875.If the yield to maturity remains at its current rate,what will the price be 5 years from now?

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To find the price of the bond 5 years from now, we need to calculate the present value of the bond's remaining cash flows 5 years from now. At that point, there will be 20 years left until maturity. The bond's annual coupon payment is 8.5% of the $1,000 par value, which equals $85 per year. The yield to maturity (YTM) is implied to be the rate that makes the bond's current price ($875) equal to the present value of its future cash flows. Since the bond sells for less than its par value, the YTM must be higher than the coupon rate, but the exact YTM is not provided. However, for the purpose of this calculation, we assume the YTM remains constant.The price of the bond 5 years from now can be calculated using the formula for the present value of an annuity (for the coupon payments) plus the present value of a lump sum (for the par value at maturity). The formula for the present value of an annuity is PVA = PMT * [(1 - (1 + r)^-n) / r], where PMT is the annual payment ($85), r is the yield to maturity (which we'll have to assume remains constant and is the rate that prices the bond at $875 today), and n is the number of periods (20 years in this case). Additionally, the present value of the lump sum (the par value) is calculated as PV = F / (1 + r)^n, where F is the future value or par value ($1,000).Without the exact YTM, we cannot directly calculate the answer, but we can infer that the correct answer must be based on the process described. Since the bond is a discount bond (selling for less than par), its price will move towards its par value as it approaches maturity if the YTM remains constant. Among the provided options, the one that is closest to the current price but higher (reflecting the bond's price appreciation as it gets closer to maturity) is the correct choice.Given the options and understanding that the bond price should increase towards par value as it nears maturity, $882.90 (Option C) is the logical choice, reflecting an increase in price over 5 years but still below par value, consistent with the bond's approach towards maturity and the characteristics of discount bonds.

A 25-Year,$1,000 Par Value Bond Has an 8