Final answer:
The price of a $1,000 par value bond with a 7% coupon rate currently selling for $820, 10 years from now, depends on the constant yield to maturity. Without knowing the exact yield to maturity, one cannot calculate the exact future price of the bond. Interest rates affect bond prices inversely; if rates go up, bond prices fall and vice versa.
Step-by-step explanation:
The question is asking for the future price of a bond given its current price, coupon rate, and yield to maturity. For a $1,000 par value bond with a 7% annual coupon rate and a current selling price of $820, we need to calculate what its price would be 10 years from now if the yield to maturity remains constant. Bonds are frequently affected by the changes in prevailing interest rates in the economy.
If interest rates rise, a bond with a lower coupon rate becomes less attractive, causing its price to drop below its face value to offer a higher yield that aligns with the new rates. Conversely, if rates fall, a bond with a higher coupon rate becomes more attractive, and its price can increase above face value, thereby decreasing its yield to match the current lower rates.
Given the provided information, we do not have enough data to exactly calculate the future bond price in 10 years, as the yield to maturity has not been explicitly stated. However, if the yield to maturity is equivalent to the bond's current yield based on the price of $820, we can utilize financial formulas or a financial calculator to find the bond's future price. We would need to know the specific yield to maturity rate to provide an accurate calculation.