Investments in the marketplace currently yield 5%. Therefore, a GM 4% coupon bond, maturing in 3...

Question

Question

Investments in the marketplace currently yield 5%. Therefore, a GM 4% coupon bond, maturing in 3 years, will be priced at?

I know the correct answer is $973 but I don't understand why

Answer 1

Answer #1

Interest = $1,000 * 0.04 = $40

Current bond price = $40(PVIFA 5%,3) + $1,000(PVIF 5%,3)

Current bond price = ($40 * 2.72325) + ($1,000 * 0.86384)

Current bond price = $973

Answer 2

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