To the nearest dollar, what is the current price of an 8%, $1,000 annual coupon bond that has sixteen years to maturity and a yield to maturity of 7

Finance Dec 23, 2020

To the nearest dollar, what is the current price of an 8%, $1,000 annual coupon bond that has sixteen years to maturity and a yield to maturity of 7.00%? $701 $911 $1,094 $1,000

Expert Solution

The correct answer is $ 1094.

Bond price = $ 1,000

Coupon interest rate = 8% = 0.08

Coupon payment = 1000 * 0.08 = $80

Yield to maturity = 7.00 % = 0.07

Remaining life of bond = 16 years

The Bond price is the present value of cash flows associated with the bond at 7% discount rate

= $1094.47

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