A 20-year bond pays 9% on a face value of $1,000. If similar bonds are currently yielding 6%, what is the market value of the bond? Use annual analysis. Use time value of money tables in Appendix B and Appendix D.
A) Under $1,300
B) Exactly $1,000
C) Over $1,300
D) Not enough information is given to tell.

Question

Quizplus · Accepted Answer

PV of interest payments: 1,000 × 0.09 = $90. Using PV of annuity table, i = 6%, n = 20 years, factor 11.470 × $90 = 1032.3
PV of principal: Using PV of $1 table, I = 6%, n = 20 years, factor 0.312 × $1,000 = 312.00
Total of both PV's = 1032.3 + 312 = 1,344.30

A 20-Year Bond Pays 9% on a Face Value of $1,000