Your fi nancial advisor recommends buying a 10-year bond with a face value of $1,000 and an annual coupon of $80. The current in

Question

3 years ago

11

terest rate is 7 percent. What might you expect to pay for the bond (aside from b

1 answer:

rusak2 [61] · Answer 1 · 2022-11-12T15:34:02+03:00

Answer:

Bond Price= $1,070.24

Step-by-step explanation:

Giving the following information:

Cupon= $80

Number of periods= 10 years

Face value= $1,000

Interest rate= 7%

<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 - (1.07^-10)] / 0.07} + [1,000 / (1.07^10)]

Bond Price= 561.89 + 508.35

Bond Price= $1,070.24