Answer:
$875.80
Step-by-step explanation:
Bond Sam has an 8% semiannual coupon rate, matures in 4 years and is sold at par value ($1,000)
if market interest rates increase by 4%, then Bond Sam's market value = PV of face value + PV of coupon payments
- PV of face value = $1,000 / (1 + 6%)⁸ = $627.41
- PV of coupon payments = coupon x PV annuity factor = $40 x 6.2098 (6%, n = 8) = $248.39
Bond Sam's market value = $627.41 + $248.39 = $875.80