a bond that matures in 12 years has a per value of $1,000 and an annual coupon rate 10%; the market interest rate is 8%. what is the price?

Price of bond = $1150.72 (Approx.)

Explanation:

Given:

Number of years  12 years

Per value = $1,000

Coupon rate = 10% = 0.1

Market rate = 8% = 0.08

Find:

Price of bond

Computation:

Coupon payment = 1,000 x 10%

Coupon payment = 100

Price of bond = [C/r][1 - 1/(1+r)ⁿ] + Per value/[(1+r)ⁿ]

Price of bond = [100/0.8][1 - 1/(1+0.8)¹²] + 1000/[(1+0.08)¹²]

Price of bond = [100/0.8][1 - 1/(1.8)¹²] + 1000/[(1.08)¹²]

Price of bond = $1150.72 (Approx.)

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