Question

. A bond with a coupon rate of 6%, paid quarterly, and 4 years to maturity is being offered in the market. If bonds with similar risks are currently being paid 8%, what is the price you would pay for this bond?
A. $981
B $425
C. $1,139
D. $932

Answer 1

K = Nx4

Bond Price =∑ [(Quarterly Coupon)/(1 + YTM/4)^k]     +   Par value/(1 + YTM/4)^Nx4

k=1

K =4x4

Bond Price =∑ [(6*1000/400)/(1 + 8/400)^k]     +   1000/(1 + 8/400)^4x4

k=1

Bond Price = 932