Question

Bond James Bond Corporation has 7 percent coupon bonds that have 14 years left to maturity....

Bond James Bond Corporation has 7 percent coupon bonds that have 14 years left to maturity. The bonds make annual payments to their holders. The YTM on these bonds is 10 percent. Calculate the current price for each of the Bond James Bond Corporation's bonds.

A. $1,030.00

B. $1,266.36

C. $740.05

D. $779.00

E. $817.95

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Answer #1
The current price of a bond is the sum total of the PV of the expected cash
flows from the bond, if it is held till maturity, the discount
rate being the market interest rate of 10%:
The expected cash flows from the bond are:
*the maturity value of $1000, receivable at EOY 14, and
*the annual interest payments of $70 for 14 years,
which constitutes an annuity.
Value of the bond = 1000/1.10^14+70*(1.10^14-1)/(0.10*1.10^14) = $       779.00
Answer: Option [D] $779.00
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