Question

What is the price of a three-year coupon bond with a coupon rate of 1%, face value equal to $100, and a current interest rate of 0.75%? Do not include any symbols in your answer.

Answer 1

Answer: 100.74

Step-by-step explanation:

Face value= $100

Coupon payment = $100 × 1% = $100 × 1/100 = $100 × 0.1 = $1

Interest rate = 0.75% = 0.75/100 = 0.0075

The price of the bond will be:

= 1/(1 + 0.0075) + 1/(1 + 0.0075)^2 + 1/(1 + 0.0075)^3

= 100.74