In the above example, the price of the bond is
A) $1125.20
B) $1000
C) $1325.50
D) $1200

Question

Quizplus · Accepted Answer

The price of the bond is calculated by first finding the present value of the promised future cash flows, which is done by discounting them at the given yield to maturity. Using the formula, we get:

PV = 50/(1+0.08) + 50/(1+0.08)^2 + 1050/(1+0.08)^3

PV = $44.77 + $41.38 + $1039.05

PV = $1125.20

Therefore, the price of the bond is $1125.20, which is option A).

In the Above Example, the Price of the Bond Is