Using a financial calculator calculate the value of a bond that matures in 20 years with a coupon interest rate of 10%,which is the required rate of return,and a par value of $1,000.

Question

Quizplus · Accepted Answer

The value of a bond can be calculated using the formula:

PV = (C/R) x [1 – 1/(1+R)^n] + F/(1+R)^n

Where: 
PV = Present Value (the value we want to find)
C = Annual coupon payment (10% of Par value of $1000, which is $100)
R = Required rate of return (also 10%)
n = Number of years until maturity (20 years)
F = Face value or Par value ($1000)

Plugging in the values, we get:

PV = (100/0.1) x [1 – 1/(1+0.1)^20] + 1000/(1+0.1)^20
PV = $1,000

Therefore, the correct choice is B.

Using a Financial Calculator Calculate the Value of a Bond