What is the price of a $1,000 par value, 10 year, 10% coupon bond which pays...

Question

Question

What is the price of a $1,000 par value, 10 year, 10% coupon bond which pays interest annually if the current required return on this bond is 10%?

A. 942

B. 1,000

c. 1,087

D. 100

business finance

Answer 1

Answer #1

Interest rate = 10% = $1,000 * 10% = $100

Current required return = 10%

Price of bond = [$100 * PVAF(10% , 10 years)] + [$1,000 * 1/(1.1)¹⁰]

Price of bond = ($100 * 6.144567) + ($1000 * 0.38554328)

Price of bond = ($614.4567) + ($385.543

Price of bond = $1,000

Since, the coupon rate = required return = 10% the bond price should equal to par value of the bond.

Option 'B' is correct

Answer 2

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