Final answer:
The feasible price for a long-term bond with a face value of $1000 and a coupon rate of 10% when the yield-to-maturity is 8%, is greater than the face value. Options A ($888) and B ($1,000) are not feasible because they are less than or equal to the face value. The correct option in the final answer is C ($1,111).
Step-by-step explanation:
The question asks which price is feasible for buying a long-term bond with a face value of $1000 that pays a coupon rate of 10%, given that the yield-to-maturity is currently 8%. To determine this, we need to understand that the yield-to-maturity on a bond is the total return an investor will receive by holding the bond until it matures. This includes both the interest payments (coupon payments) and any capital gain or loss (difference between the purchase price and the face value).
When the coupon rate on a bond is higher than the yield-to-maturity, the bond will sell for more than its face value. This is because the bond's interest payments are more generous than what is currently required by the market. Conversely, if the coupon rate is lower than the yield-to-maturity, the bond would sell for less than its face value.
In this case, the coupon rate is 10%, which is higher than the current yield-to-maturity of 8%. Hence, the bond should sell for more than its face value. Therefore, option A ($888) and option B ($1,000) are not feasible since they are less than or equal to the face value. The feasible price, given the higher coupon rate in comparison to the yield-to-maturity, would be option C ($1,111).
Hence, the correct option in the final answer is option C ($1,111).