Bond price: Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the maximum price that should be paid for this bond? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The bond's price is calculated using the present value of its future cash flows, which include semiannual coupon payments and the face value at maturity. Given the coupon rate is higher than the market rate, the bond will be priced at a premium. Calculating the present value of the bond's cash flows using the market rate of 9% (or 4.5% per period for semiannual) results in a price of approximately $1,195.

Bond Price: Jeremy Kohn Is Planning to Invest in a 10-Year