How much is a bond that pays $50 in coupon payments for 3 years and $1000 at the end of the third year worth if the interest rate is 10 per cent?

Question

Quizplus · Accepted Answer

The correct answer is A. The bond is worth $876. The present value of the coupon payments is $50/(1+0.1)^1 + $50/(1+0.1)^2 + $50/(1+0.1)^3 = $132.82. The present value of the face value is $1000/(1+0.1)^3 = $743.18. The total present value of the bond is $132.82 + $743.18 = $876.

How Much Is a Bond That Pays $50 in Coupon