How much is a bond that pays $80 in coupon payments for 4 years and $1,000 at the end of the fourth year worth if the interest rate is 6%?

Question

Quizplus · Accepted Answer

The bond's worth is calculated by finding the present value of the coupon payments and the face value. The present value of the coupon payments is $80 * [(1 - (1 + 0.06)^-4) / 0.06] = $287.48. The present value of the face value is $1,000 / (1 + 0.06)^4 = $792.31. Adding these gives $287.48 + $792.31 = $1,069.79, which is closest to option C.

How Much Is a Bond That Pays $80 in Coupon