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What must be the price of a $ 1000 bond with a 6 ​% coupon​ rate,...

What must be the price of a $ 1000 bond with a 6 ​% coupon​ rate, annual​ coupons, and 20 years to maturity if YTM is 8.9 % ​APR? A. $ 733.37 B. $ 880.05 C. $ 586.70 D. $ 1 026.72

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Answer #1

Information provided:

Future value= $1,000

Coupon rate= 6%

Coupon payment= 0.06*1,000= $60

Yield to maturity= 8.9%

Time= 20 years

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

The present value of the bond is computed by entering the below in a financial calculator:

FV= 1,000

PMT= 60

I/Y= 8.9

N= 20

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

The value obtained is $733.37.

The price of the bond is $733.37 and the answer is option a.

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