Question

A 3-year bond with 10% coupon rate and $1000 face value yields 8%. Assuming annual coupon payment, calculate the price of the bond. Group of answer choices

Answer 1

The group of answer choices are missing. Following is the complete question.

A 3-year bond with a 10% coupon rate and $1000 face value yield-to-maturity of 8%. Assuming annual coupon payments, calculate the price of the bond.  Group of answer choices

A. $857.96

B. $951.96

C. $1000.00

D. $1051.54

Answer:

The answer is d. $1051.54

Explanation:

To calculate the price of the bond, we need to first calculate the coupon payment per period. The bonds are annual bonds so the coupon payment is per year.

Coupon Payment = 1000 * 0.10  = $100

Total periods = 3

The formula to calculate the price of the bonds today is attached.

Bond Price = 100 * [( 1 - (1+0.08)^-3) / 0.08]  +  1000 / (1+0.08)^3

Bond Price = $1051.54