Stephanie would like to purchase a bond that has a par value of $1,000, pays $80 at the end of each year in coupon payments, and has ten years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 6 percent, how much will Stephanie pay for the bond?

Question

Quizplus · Accepted Answer

To calculate the price of the bond, Stephanie can use the formula:

Price = (Coupon payment / Yield) x [1 - 1 / (1 + Yield)^n] + Par value / (1 + Yield)^n

Where:
- Coupon payment = $80
- Yield = 6% = 0.06
- n = 10 (remaining years until maturity)
- Par value = $1,000

Plugging in these values, we get:

Price = ($80 / 0.06) x [1 - 1 / (1 + 0.06)^10] + $1,000 / (1 + 0.06)^10
Price = $1,147.20

Therefore, Stephanie will pay $1,147.20 for the bond. The correct answer is B.

Stephanie Would Like to Purchase a Bond That Has a Par