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A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for...

A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $1,175. If the yield to maturity remains at its current rate, what will the price be 5 years from now? Select the correct answer. a. $1,159.09 b. $1,165.29 c. $1,168.39 d. $1,162.19 e. $1,155.99

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Expert Solution

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =25
1175 =∑ [(8.5*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^25
                   k=1
YTM% = 7
                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =20
Bond Price =∑ [(8.5*1000/100)/(1 + 6.9985/100)^k]     +   1000/(1 + 6.9985/100)^20
                   k=1
Bond Price = 1159.09

jeff jeffy answered 3 months ago
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