How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures…?
Posted by admin in Finance Friday, 9 December 2011 11:52 2 Comments
How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if the interest rate is 7%?
THE OPTIONS ARE:
A) $696.74
B) $1,075.82
C) $1,082.00
D) $1,123.01
To calculate the Price of the bond, we’ll use the following symbols:
(pv1,i,n) = present value of $1 discounted at i%, n periods from the present
(pva,i,n) = present value of an annuity of $1 discounted at i%, for n periods
The price of the bond is $1,000(pv1, 7%, 5)+ 9%($1,000)(pva, 7%, 5)
Using the tables attached, this
= $1,000(0.713) + 9%($1,000)(4.100)
= $713 + $369 = $1,082.00
C) $1,082.00
C