Question

Consider a 10-year bond with a coupon rate of 6 percent. If a bond with similar risk has a yield to maturity of 8 percent, estimate the bond’s fair market value. Select one: a. $1,000-$1,100 b. $900-$1,000 c. Less than $900 d. More than $1,100 g

Answer 1

c. Less than $900

Step-by-step explanation:

For computing the bond fair market value we used the present value formula i.e to be shown in the attachment below:

Given that,

Future value = $1,000

Rate of interest = 8%

NPER = 10 years

PMT = $1,000 × 6% = $60

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

After applying the above formula, the bond fair market value is $865.80