Question

Builtrite bonds have the following: 6 ½% coupon, 16 years until maturity, $1000 par and are currently selling at $1010. If you want to make an 7% return, what would you be willing to pay for the bond?

		$953
		$944
		$935
		$962

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =16

Bond Price =∑ [(6.5*1000/100)/(1 + 7/100)^k]     +   1000/(1 + 7/100)^16

k=1

Bond Price = 952.77 = 953