Question

What is the value of a bond that matures in 8 years, has an annual coupon... What is the value of a bond that matures in 8 years, has an annual coupon payment of \$90, and has a par value of \$1000? Assume a required rate of return of 10%, and round your answer to the nearest \$10. O \$1,200 \$950 O \$900 O \$1,150

Value of bond=Annual coupon*Present value of annuity factor(10%,8)+\$1000*Present value of discounting factor(10%,8)

=\$90*5.334926198+\$1000*0.46650738

=\$950(Approx).

NOTE:

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=\$90[1-(1.1)^-8]/0.1

=\$90*5.334926198

2.Present value of discounting factor=\$1000/1.1^8

=\$1000*0.46650738

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