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Your financial adviser recommends buying a 10-year bond with a face value of $1,000 and an annual coupon of $80. The current interest rate is 7 percent. What might you expect to pay for the bond (aside from brokerage fees)?

Respuesta :

hyderali230

Answer:

I will pay $1070.24 for the Bond.

Explanation:

Coupon payment = = $80

Number of years = n = 10 years

Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula:

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Price of the Bond =$80 x [ ( 1 - ( 1 + 7% )^-10 ) / 7% ] + [ $1,000 / ( 1 + 7% )^10 ]

Price of the Bond = $80 x [ ( 1 - ( 1.07 )^-10 ) / 0.07 ] + [ $1,000 / ( 1.07 )^10 ]

Price of the Bond = $561.89 + $508.35

Price of the Bond = $1,070.24

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