Twenty years ago JeffCo Inc.issued thirty-year 9% annual coupon bonds with a $1,000 face value each.Since then,interest rates in general have risen and the yield to maturity on the firm's bonds is now 11%.Given this information,what is the price today for a bond from this issue?

Question

Quizplus · Accepted Answer

To calculate the current price of a bond, we need to use the formula:

Price of Bond = (Coupon Payment / (1 + Yield to Maturity)^n-1) + (Par Value / (1 + Yield to Maturity)^n)

n = Number of Periods
Coupon Payment = Annual Coupon Rate x Par Value

Using the given information, we can calculate the coupon payment:
Coupon Payment = 0.09 x $1,000 = $90

n = 30 (since it's a 30-year bond)

Plugging in the values:
Price of Bond = $90 / (1 + 0.11)^1 + $1,000 / (1 + 0.11)^30
= $39.24 + $842.97
= $882.22

Therefore, the current price of the bond is $882.22. The correct answer is C.

Twenty Years Ago JeffCo Inc