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 / 1.09¹ + $ 40 / 1.09² + $ 40 / 1.09³ + $ 40 / 1.09⁴ + $ 40 / 1.09⁵ + $ 40 / 1.09⁶ + $ 40 / 1.09⁷ + $ 40 / 1.09⁸ + $ 40 / 1.09⁹ + $ 1,000 / 1.09⁹

= $ 700.24 Approximately

So, the correct answer is option B.

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