Question

About what is the price of a 6% coupon, $1,000 par bond, 20 years to maturity...

About what is the price of a 6% coupon, $1,000 par bond, 20 years to maturity if the yield to maturity is 5%?

a. $1,179.45

b. $1,124.62

c. $1,000.00

d. $885.37

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Answer #1

The price of the bond is computed as shown below:

The coupon payment is computed as follows:

= 6% x $ 1,000

= $ 60

So, the price of the bond is computed as follows:

Bonds Price = Coupon payment x [ [ (1 - 1 / (1 + r)n ] / r ] + Par value / (1 + r)n

= $ 60 x [ [ (1 - 1 / (1 + 0.05)20 ] / 0.05 ] + $ 1,000 / 1.0520

= $ 60 x 12.46221034 + $ 376.8894829

= $ 1,124.62 Approximately

Feel free to ask in case of any query relating to this question      

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