A $1000 par value 10-year bond with coupons at j₂ = x%,is redeemable at 105.The price of this bond to yield j₂ =10% is $919.15.Determine x.

Question

Quizplus · Accepted Answer

The price of a bond is calculated using the formula that equates the present value of its future cash flows (coupon payments and the redemption value) to its current price. Given that the bond's price is $919.15, it yields 10%, has a par value of $1000, and is redeemable at 105% of its par value ($1050), we can set up the equation to solve for the coupon rate (x). The correct answer is found by identifying the coupon rate that satisfies this equation, which is 8.40%. This is because the coupon rate that results in the bond being priced at $919.15, given its yield and redemption value, is 8.40%.

A $1000 Par Value 10-Year Bond with Coupons at J2

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