Question

If a $1,000, 8% semi-annual bond matures, how much money will the bondholder receive as a final payment?

____

A)     $1,000

B)     $1,040

C)     $1,080

D)    Undetermined due to the unknown term of the bond

Answer 1

The Answer is “D. Undetermined due to the unknown term of the bond”

In the absence of the maturity period or term of the bond, we can’t be able to determine the money that the bond holders will receive as their final payment. The following are the parameters required to calculate the price of the bond

- Par Value

- Coupon rate

- Maturity period or term of the bond

- Market rate or Yield to Maturity [YTM] of the bond

In this question, the maturity period or term of the bond is not given, Hence the final payment is Undetermined due to the unknown term of the bond