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andreyandreev [35.5K]
3 years ago
12

What is the current value of a $1,000 bond with a 8% annual coupon rate (paid semi-annually) that matures in 8 years if the appr

opriate stated annual discount rate is 5%. Please round your answer to the nearest hundredth.
Business
1 answer:
kondor19780726 [428]3 years ago
4 0

Answer:

Bond Price​= $1,193.9

Explanation:

Giving the following information:

Face value= $1,000

Coupon= 0.08*1,000= $80

Discount rate= 0.05

Years to maturity= 8 years

<u>To calculate the price of the bond, we need to use the following formula:</u>

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 80*{[1 - (1.05^-8)] / 0.05} + [1,000/(1.05^8)]

Bond Price​= 517.06 + 676.84

Bond Price​= $1,193.9

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