Question

Five years ago, you purchased a $1,000 par value corporate bond with a coupon interest rate of 6 percent. Today comparable bonds are paying 6.5 percent. What is the approximate dollar price for which you could sell your bond?

Answer 1

Answer:

$923.077

Explanation:

Data provided in the question:

Face value of the bond = $1,000

Interest rate = 6% = 0.06

Comparable interest rate = 6.5% = 0.065

Now,

The amount of annual interest  on the bond

= Face value × Interest rate

= $1,000 × 0.06

= $60

Therefore,

the approximate dollar price for selling the bond

= ( Dollar amount of annual interest ) ÷ ( Comparable interest rate )

= $60 ÷ 0.065

= $923.077