What is the value of a bond that matures in 17 years,makes an annual coupon payment of $50,and has a par value of $1,000? Assume a required rate of return of 6%.

Question

Quizplus · Accepted Answer

To calculate the value of the bond using present value formula:
PV = (Annual coupon payment/ Required rate of return) x [1 - 1/(1 + r)^n] + (Par value/(1+r)^n)
Where:
Annual coupon payment = $50
Required rate of return = 6%
Par value = $1000
n = 17
Putting the values into the formula:
PV = (50/0.06) x [1 - 1/(1 + 0.06)^17] + (1000/(1+0.06)^17)
PV = $895.23
Hence, the best choice is C.

What Is the Value of a Bond That Matures in 17