Question

Consider a bond with a coupon rate of 8 percent that pays semiannual coupon and matures in eight years. The market rate of return on bonds of this risk is currently 10 percent. What is the current value of a $1,000 face value bond?

$891.62

$830.58

$854.08

$843.07

Answer 1

Price of Bond = PV of CFs from it.

Period	CF	PVF @5%	Disc CF
1	$      40.00	0.9524	$   38.10
2	$      40.00	0.9070	$   36.28
3	$      40.00	0.8638	$   34.55
4	$      40.00	0.8227	$   32.91
5	$      40.00	0.7835	$   31.34
6	$      40.00	0.7462	$   29.85
7	$      40.00	0.7107	$   28.43
8	$      40.00	0.6768	$   27.07
9	$      40.00	0.6446	$   25.78
10	$      40.00	0.6139	$   24.56
11	$      40.00	0.5847	$   23.39
12	$      40.00	0.5568	$   22.27
13	$      40.00	0.5303	$   21.21
14	$      40.00	0.5051	$   20.20
15	$      40.00	0.4810	$   19.24
16	$      40.00	0.4581	$   18.32
16	$ 1,000.00	0.4581	$ 458.11
Price of Bond			$ 891.62

OPtion A is correct.