How much would an investor expect to pay for a $5,000 par value bond with a 9% a

Question

How much would an investor expect to pay for a $5,000 par value bond with a 9% annual coupon that matures in 10 years if the interest rate is 7% ? 5702.36 O 4374.25 O 3811.42 O 3584.55 What is the yield to maturity for a bond with an annual coupon of 10% that has 8 ears until maturity and sells for $1,000? (Points : 4) ? 8% ? 9.4% 0 1096 0 12.5% hat is the yield to maturity of a bond with the following characteristics? Coupon rate is 8% with quarterly payments, current price s S940, 6 years until maturity 0 4.78% 0 2.33% ? 9.32% ? 4.67% ? 3.48%

Explanation / Answer

Question 1

Market value of bond = Present value of coupon payments + Present value of face value of bond

Annual coupon payment = $5,000 * 9% = $450

Maturity of bond = 10 years

Number of annual coupon payments = n = 10 years = 10

Annual effective interest rate = r = 7% = 0.07

Present value of annuity = Annuity amount*{1-(1+r)-n}/r

Present value of annual coupon payments = $450 * (1-1.07-10)/0.07 = $3,160.61

Present value of face value of bond = $1000/1.0710 = $2,541.75

Market value of bond = $3,160.61 + $2,541.75 = $5,702.36

Hence, correct answer is $5,702.36

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