Company A has a bond outstanding that pays a 7% coupon.The interest is paid semiannually,and the bond matures in 10 years.If the market rate of interest on bonds of similar risk is 8%,what should company A's bond be selling for,approximately?

Question

Quizplus · Accepted Answer

The bond's price can be calculated using the present value of its future cash flows, which include semiannual coupon payments and the face value at maturity. Given a 7% annual coupon rate, the semiannual coupon is 3.5%. With a market rate of 8% annually (4% semiannually), the bond's price is the present value of these cash flows, which is approximately $932.05.

Company a Has a Bond Outstanding That Pays a 7