Bond price: Your friend recommends that you invest in a three-year bond issued by Trimer Ltd that will pay annual coupons of 10 percent. Similar investments today will yield 6 percent. How much should you pay for the bond? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The bond's price is calculated by discounting the future cash flows (coupon payments and face value) at the current market yield of 6%. The bond pays $100 annually for 3 years and $1,000 at maturity. The present value of these cash flows is approximately $1,107.

Bond Price: Your Friend Recommends That You Invest in a Three-Year