If you own a $1,000 face value bond with one year remaining to maturity and a 7 percent coupon rate and new bonds are paying 11 percent,what is the most you can get for your old bond?
A)$1,028.85
B)$1,000.00
C)$963.96
D)$952.30

Question

Quizplus · Accepted Answer

The most you can get for your old bond is the present value of its future cash flows. Using a financial calculator, the present value of a $70 annuity for one year at 11% is $63.64. The present value of the $1,000 face value received in one year is $900.91. Adding these two amounts gives a total present value of $964.55. Therefore, the best choice is (C) because it is closest to $964.55.

If You Own a $1,000 Face Value Bond with One