USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Talmart Corporation bonds have a $1,000 face value and will mature in four years. The bonds have a 7 percent coupon rate. Interest is paid annually, and the required rate of return is 6 percent for these bonds.
-Refer to Exhibit 13.2. What is the price of the Talmart corporate bonds?
A) $965.63
B) $966.13
C) $1,034.65
D) $1,135.10
E) $1,051.97

Question

Quizplus · Accepted Answer

The price of a bond can be calculated using the present value of its future cash flows, which include the annual coupon payments and the face value at maturity. The annual coupon payment is 7% of the $1,000 face value, or $70. The present value of the coupon payments and the face value can be calculated using the formula for the present value of an annuity and the present value of a single sum, respectively, with a discount rate of 6%. The calculation yields a bond price of $1,034.65, making option C correct.