37 A three-year bond with a principal amount of $5,000, a 3% coupon rate paid annually and one year to go to maturity,...

Question

Question

37 A three-year bond with a principal amount of $5,000, a 3% coupon rate paid annually and one year to go to maturity, will s

business economics

Answer 1

Answer #1

Face Value, M = $ 5,000

Tenure, n = 1 year

Coupon Rate, C = 3% of $ 5,000 = $ 150

Interest rate, i = 5%

Price of the bond can be determined using the following formula

P CP/A, i%, n)M(P/F, i%, n)

$P =x (1(1 i))Mx (1) -n X$

Plug in the values in the above equation we get

150 P = 9 05 x (1(10.05))5,000 x (1 +0.05)-1

P= 150 x 0.952381 + 5, 000 x 0.952381

P=142.85714761.905

P = $4,904.762

$P$4,905$

Option D. $ 4,905

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Answer 2

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