Question

Six years ago, Carl purchased an 8% coupon bond that had 10 years to maturity for $1,150. Since the bond purchase, the required return on the bond has remained constant. If Carl sells the bond now, the price he receives for the bond will be:

		$1,150.
		Between $1,000 and $1,150.
		higher than $1,150.
		less than $1,000.

Answer 1

Answer-

Consider that scenario 6 years back

Purchase value = $ 1150
Face value = $ 1000
Coupon Payments = 8 % x $ 1000 = $ 80
Number of years = 10

Using financial calculator we have to calculate required return

PV = $ 1150
FV = $ 1000
PMT = $ 80
N = 10
I/Y = ?

I/Y = 5.965 %

Now we need to calculate the value of bond when redeemed now

PV = $ 1150
PMT = $ 80
N= 6
I/Y = 5.965 % [ Note - The required return on bond remained same]
FV = ?

FV = $ 1070.53

Therefore the Correct Option is second choice. Carl receives Between $1,000 and $1,150 on the sale of bond.

The other Options are incorret.