Question

A Canadian company issues an 8-year term bond with face value of​ $1,000 and​ 6% coupon rate. If the market prevailing effective rate of interest is​ 5.75%, what is the price an investor will have to​ pay? Note: The bond pays a​ $60 coupon​ (or interest) payment at the end of each of the 8 years and pays the face value at the end of the 8 years.

A.​$1,150.00

B.​$1,200.00

C.​$1,015.85

D.​$1,215.00

Answer 1

Value of Bond = PV of CFs from it.

Year	CF	PVF @5.75%	Disc CF
1	$      60.00	0.9456	$      56.74
2	$      60.00	0.8942	$      53.65
3	$      60.00	0.8456	$      50.74
4	$      60.00	0.7996	$      47.98
5	$      60.00	0.7561	$      45.37
6	$      60.00	0.7150	$      42.90
7	$      60.00	0.6761	$      40.57
8	$      60.00	0.6394	$      38.36
8	$ 1,000.00	0.6394	$    639.38
Value of Bond			$ 1,015.68

Option C is correct.