A Canadian company issues an 8-year term bond with face value of $1,000 and 6% coupon rate.If the market prevailing effective rate of interest is 5.75%,what is the price an investor will have to pay? Note: The bond pays a $60 coupon (or interest)payment at the end of each of the 8 years and pays the face value at the end of the 8 years.
A) $1,015.85
B) $1,200.00
C) $1,150.00
D) $1,215.00

Question

Quizplus · Accepted Answer

A) Use both formula of PV of annuity or bond function of calculator by Taxes BA II Plus. PV is PV of $60 annuity for 8 years + PV of $1,000 after 8 years = 60{[1 - (1.12)^-8]/.12 + 1,000/(1.12)⁸ = 1,015.68

A Canadian Company Issues an 8-Year Term Bond with Face