A corporation issues a two-year bond with a coupon of $50and a face value of $1,000. A year later, market interest rates have declined to 3%. What is the price of the bond a year after it was issued? Select one: a)$1,000.00 b)$1,025.00 c)$1,019.42 d)$1,038.27
A corporation issues a two-year bond with a coupon of $50and a face value of $1,000. A year later, market interest rates have declined to 3%. What is the price of the bond a year after it was issued? Select one: a)$1,000.00 b)$1,025.00 c)$1,019.42 d)$1,038.27
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A corporation issues a two-year bond with a coupon of $50and a face value of $1,000. A year later, market interest rates have declined to 3%. What is the price of the bond a year after it was issued? Select one:
a)$1,000.00
b)$1,025.00
c)$1,019.42
d)$1,038.27
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Step 1: Understand Bond Valuation Concepts
VIEWStep 2: Identify Relevant Bond Information
VIEWStep 3: Apply the Present Value Formula for Remaining Cash Flows
VIEWStep 4: Calculate the Present Value of the Coupon Payment
VIEWStep 5: Calculate the Present Value of the Face Value
VIEWStep 6: Determine the Bond's Current Price
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