Question

What is the current price of a 9%, $1,000 annual coupon bond that has eighteen years to maturity and a yield to maturity of 8%? Select one: a. 1200 b. 701 c. 1093.72 d. 1000

Answer 1

The current price of a 9%, $1,000 annual coupon bond that has eighteen years to maturity and a yield to maturity of 8% is c. 1093.72

How to calculate the current price of a bond

To calculate the current price of a bond, use the formula:

Current Price = (Coupon Payment / Yield to Maturity) * (1 - (1 / (1 + Yield to Maturity
`)^N`)) + (Par Value / (1 + Yield to Maturity
`)^N`)

Given:

Coupon Payment = $1,000 (annual)

Yield to Maturity = 8% (0.08)

Maturity (Years) = 18

Par Value = $1,000

Let's substitute the values into the formula:

Current Price =
`($1,000 / 0.08) * (1 - (1 / (1 + 0.08)^1^8)) + ($1,000 / (1 + 0.08)^1^8)`

Calculating this expression gives us approximately $1,093.72.

Therefore, the correct answer is c. $1,093.72.