Consider a 10-year bond with a face value of $1000 and with an annual coupon of $100.What is its market value if the appropriate required rate of return is 6% p.a.?
A)$2000
B)$1294.40
C)$1349.51
D)$1752.12

Question

Quizplus · Accepted Answer

The correct answer is B. The market value of the bond can be calculated using the present value formula:PV = C * [1 - (1 + r)^-n] / r + F * (1 + r)^-nwhere:PV is the present value of the bondC is the annual coupon paymentr is the required rate of returnn is the number of years to maturityF is the face value of the bondIn this case, we have:C = $100r = 6%n = 10F = $1000Plugging these values into the formula, we get:PV = $100 * [1 - (1 + 0.06)^-10] / 0.06 + $1000 * (1 + 0.06)^-10PV = $1294.40Therefore, the market value of the bond is $1294.40.

Consider a 10-Year Bond with a Face Value of $1000