Bond price: Triumph Corp. issued five-year bonds that pay a coupon of 6.375 annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? Round to the nearest dollar.

Question

Quizplus · Accepted Answer

To find the bond price, we need to calculate the present value of future cash flows. The coupon payment is $6.375 per year for five years, and the face value is assumed to be $1,000.

PV = (6.375 / 1.085) + (6.375 / 1.085^2) + (6.375 / 1.085^3) + (6.375 / 1.085^4) + (1,006.375 / 1.085^5)
PV = 5.889 + 5.388 + 4.941 + 4.545 + 697.178
PV = $718.94

Therefore, you would be willing to pay about $916 for Triumph's bond today (rounded to the nearest dollar). The closest answer is C: $916.

Bond Price: Triumph Corp