Question

Mr. Bond is considering purchasing a bond with 10-year maturity and $1,000 face value. The coupon interest rate is 8% and the interest is paid annually. If Mr. Bond requires 11% yield to maturity (YTM) on the investment, then the price of the bond is:

	$877.11
	$773.99
	$1,122.87
	$823.32

Answer 1

Information provided:

Face value= future value= $1,000

Time= 10 years

Coupon rate= 8%

Coupon payment= 0.08*1,000= $80

Yield to maturity= 11%

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 80

I/Y= 11

N= 10

Press the CPT key and PV to compute the present value.

The value obtained is 823.32.

Therefore, the price of the bond is $823.32.

Hence, the answer is option d.