How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%?

Question

Quizplus · Accepted Answer

The bond's present value is the sum of the present values of the coupon payments and the present value of the face value. The present value of the coupon payments is $50/(1+0.1)^1 + $50/(1+0.1)^2 + $50/(1+0.1)^3 = $132.28. The present value of the face value is $1,000/(1+0.1)^3 = $743.72. Therefore, the bond's present value is $132.28 + $743.72 = $876.

How Much Is a Bond That Pays $50 in Coupon