The prices of a one-year 4% coupon bond, a two-year 5% coupon bond, and a three-year 6% coupon bond are $101, $100 and $99, respectively. Coupons are paid annually. What is the price of a bond that pays $37 each year?

Question

Quizplus · Accepted Answer

The price of a bond that pays $37 each year can be calculated using the yields of the given bonds as benchmarks. The yields can be derived from the given prices and coupon rates. Then, these yields can be used to discount the $37 annual payments and the principal to find the price of the desired bond. The calculation involves finding the present value of the $37 annual payments using the yields of the given bonds as the discount rates for their respective years. The sum of these present values gives the price of the bond, which is closest to $100.08.

The Prices of a One-Year 4% Coupon Bond, a Two-Year