Answer:
Price of Bond = $687.66
Step-by-step explanation:
The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).
Value of Bond = PV of interest + PV of RV
The value of bond for Bank Mart Inc can be worked out as follows:
Step 1
Calculate the PV of interest payments
Annual interest payment
= 3%× 1000 = 30
PV of interest payment
PV = A× (1- 1+r)^(-n)
A- 30, r- 8%, n- 9
30× ((1-1.08^(-9))/0.08)=187.41
Step 2
PV of redemption Value
PV = RV × (1+r)^(-n)
RV - 1000, r- 8%, n- 9
PV of RV = 1000 × 1.08^(-9) = 500.24
Step 3
Price of bond
Total PV = 187.41 + 500.24 = $687.66
Price of Bond = $687.66