Question

Jill is interested in a 8-year bond which pays a coupon of 8.6 percent annually and...

Jill is interested in a 8-year bond which pays a coupon of 8.6 percent annually and trades at a yield of 7.2% per annum. The face value is $1,000. What is the current price of this bond? (to the nearest cent)

Select one:

a. $1082.95

b. $1084.03

c. $921.35

d. $573.38

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Homework Answers

Answer #1

Answer: a.) $1082.95

Calculation:

As the bond is paying 8.6% of $1000 annually for 8 years with 7.2% YTM we need to find the current price of the bond.

Current price of the bond is nothing but the present value of all future cash flow.

In this bond, we have 8 cashflows of $86 and one cash flow of $1000 at the end of 8th year.

While YTM is a discount rate for the same.

Please find attached images for a solution along with formula.

If you need more clarification in any step, please let me know through comment.

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