The interest rate for a $1,000 bond is 6 percent.If comparable bonds are paying 9 percent, what is the approximate market value for the 6 percent bond?

Question

Quizplus · Accepted Answer

The market value of the bond can be calculated using the formula: 
Market value = (Annual Interest Payment / Market Interest Rate) x (1 - 1 / (1 + Market Interest Rate / Number of Payments)) + Face Value / (1 + Market Interest Rate / Number of Payments) ^ Number of Payments 
Substituting the given values, we get: 
Market value = (60 / 0.09) x (1 - 1 / (1 + 0.09 / 2)) + 1000 / (1 + 0.09 / 2) ^ 2 
Market value = $667. Therefore, the best choice is D, as it is the closest to $667.

The Interest Rate for a $1,000 Bond Is 6 Percent