With a 10% discount rate,the present value factors of $1 received at the end of each of the next three years are 0.909,0.826,and 0.751,respectively.Given these values,the present value of a $1,000 (par),3-year corporate bond with an 8% coupon rate is

Question

Quizplus · Accepted Answer

To calculate the present value of the corporate bond, we need to calculate the present value of each of the three annual coupon payments and the present value of the bond's face value at maturity.

The annual coupon payment is $80 (8% of $1,000). Using the present value factors given, we can calculate the present value of each coupon payment:
Year 1: $80 x 0.909 = $72.72
Year 2: $80 x 0.826 = $66.08
Year 3: $80 x 0.751 = $60.08

To calculate the present value of the bond's face value at maturity, we use the present value factor for year 3:
$1,000 x 0.751 = $751

Finally, we add up all the present values to get the total present value of the bond:
$72.72 + $66.08 + $60.08 + $751 = $949.88

Therefore, the answer is A.

With a 10% Discount Rate,the Present Value Factors of $1