Question

Six years ago you purchased a 15-year $1,000 bond with a coupon rate of 4 percent. You now wish to sell the bond and read that yields are 9 percent. What price should you receive for the bond?

A$900.16 |
||

B$700.24 |
||

C$661.42 |
||

D$1,029.69 |

Answer #1

**The price is computed as shown below:**

**The coupon payments is computed as follows:**

= 4% x $ 1,000

**= $ 40**

**N will be 9 years since 6 years has already
passed.**

**So, the price of the bond will be as
follows:**

= $ 40 / 1.09^{1} + $ 40 / 1.09^{2} + $ 40 /
1.09^{3} + $ 40 / 1.09^{4} + $ 40 /
1.09^{5} + $ 40 / 1.09^{6} + $ 40 /
1.09^{7} + $ 40 / 1.09^{8} + $ 40 /
1.09^{9} + $ 1,000 / 1.09^{9}

**= $ 700.24 Approximately**

**So, the correct answer is option B.**

Feel free to ask in case of any query relating to this question

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