Question

What must be the price of a $1000 bond with a 6.5​% coupon​ rate, annual​ coupons, and 15 years to maturity if YTM is 7.6 % ​APR?

A. $1084.20

B.$1264.90

C.$722.80

D.903.50

Answer 1

Price of a bond is mathematically represented as: 1 1 (1+ i)" P C i (1) where P is price of bond, with periodic coupon C, n periods to maturity, periodic YTM i and face value M.

M = $1000, n = 15, i = 7.6%, C = 6.5% * $1000 = $65

$P = 65 * \frac{1 - \frac{1}{(1 + 0.076)^{15}}}{0.076} + \frac{1000}{(1 + 0.076)^{15}}$

P = $570.22 + $333.29

P = $903.50