What is the value of a bond that pays a 6% semi-annual coupon, has a face value of $1,000, matures in 20 years, and has a yield to maturity of 8%?
Question 45 options:
Face value= future value= $1,000
Time= 20 years*2= 40 semi-annual periods
Coupon rate= 6%/2= 3%
Coupon payment= 0.03*1,000= $30 per semi-annual period
Yield to maturity= 8%/2= 4% per semi-annual period
The value of the bond is calculated by computing the present value.
Enter the below in a financial calculator to compute the present value:
Press the CPT key and PV to compute the present value.
The value obtained is 802.07.
Therefore, the value of the bond is $802.07.
Hence, the answer is option d.
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