Question

What is the price of a 8 percent bond that matures in 10 years and has a par value of $1,000? Assume a discount rate of 6 percent.

a.

$815.66

b.

$1,073.60

c.

$1147.20

d.

$1,000

Answer 1

Computation Of Bond Price
a	Annual Coupon Amount	$                       80.00
b	Present Value Annuity Factor for (10 Years,6%)	7.360087
c	Present Value Of Annual Interest (a*b)	$                    588.81
d	Redemption Value	$                 1,000.00
e	Present Value Of (10 Years,6%)	0.55839
g	Present Value Of Redemption Amount (d*e)	$                    558.39
f	Bond Price(c+g)	$                 1,147.20

Correct Answer =c.$1147.20