Question

Your fi nancial advisor recommends buying a 10-year bond with a face value of $1,000 and an annual coupon of $80. The current interest rate is 7 percent. What might you expect to pay for the bond (aside from b

Answer 1

Bond Price​= $1,070.24

Explanation:

Giving the following information:

Cupon= $80

Number of periods= 10 years

Face value= $1,000

Interest rate= 7%

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 80*{[1 - (1.07^-10)] / 0.07} + [1,000 / (1.07^10)]

Bond Price​= 561.89 + 508.35

Bond Price​= $1,070.24