Question

Two years ago, you purchased a $1,000 par value corporate bond with a coupon interest rate of 7.25 percent. Today, comparable bonds are paying 7.00 percent. What is the approximate dollar price for which you could sell your bond?

Answer 1

Answer:

$1,035.71

Explanation:

first we must determine the annual interest = face value x coupon rate = $1,000 x 7.25% = $72.50

now to determine the approximate market value = annual interest / market interest rate = $72.50 / 7% = $1,035.71

since the market rate is lower than the coupon rate, you can sell your bond at a premium