Question

In: Finance

A 7 3/5% bond matures in 10 years. Assuming the coupon is paid annually and the...

A 7 3/5% bond matures in 10 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 9% rate of return?

A) $895.71

B) $954.05

C) $910.15

D) $848.83

Expert Solution

Par value= future value= $1,000

Time= 10 years

Coupon rate= 7 3/5% 7.60%

Coupon payment= 0.076*1,000= $76

Rate of return= 9%.

The value of the bond is calculated by computing the present value.

The present value is computed by entering the below in a financial caclcualtor:

FV= 1,000

N= 10

PMT= 76

I/Y= 9

Press the CPT key and PV to compute the present value.

The value obtained is 910.15.

Therefore, the value of the bond is $910.15.

Hence, the answer is option c.

In case of any query, kindly comment on the solution.

jeff jeffy answered 10 months ago

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