A bond matures in 10 years, pays $ 80 each year, and pays $ 1,000 at...

A bond matures in 10 years, pays $ 80 each year, and pays $ 1,000 at maturity. Assume that the market interest is 10%. What is the present value of the bond?

Expert Solution

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (10%,10 periods)	$ 80.00	6.14457	$ 491.57
Present value of bond face amount -Present value (10%,10 periods)	$ 1,000.00	0.38554	$ 385.54

Bond price			$ 877.11
Face value			$ 1,000.00
Premium/(Discount)			$ (122.89)

Present value of bond is 877.11

jeff jeffy answered 2 years ago

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