Question

A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually. Calculate the current price of the bond. Group of answer choices $1579.46 $918.89 $789.29 $1000.00 $743.29

Answer 1

Answer:

$918.89

Explanation:

For computing the current price of the bond we need to apply the present value formula i.e to be shown in the attachment

Given that,  

Future value = $1,000

Rate of interest = 8%  ÷ 2 = 4%

NPER = 5 years × 2 = 10 years

PMT = $1,000 × 6% ÷ 2 = $30

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the current price of the bond is $918.89