Question

Question 6 1 pts 6. What is the market value of a 5-year maturity and $1,000 par value bond with an 6% coupon interest rate? Assume that the investor's required rate of return from the bond is 8%. Assume that interest is paid annually. e $800 e $920.15 e $1,000 e $1,084.25

Answer 1

Present Value = Future value/ ((1+r)^t)
where r is the required rate of return on the bond that is 8% and t is the time period
Par/Face value	1000
Annual coupon rate	0.06
Annual coupon	60
price of bond = sum of present values of future cash flows.
t	1	2	3	4	5
future cash flow	60	60	60	60	1060
present value	55.56	51.44	47.63	44.10	721.42
price/sum of present values	920.15
The market value of the bond is $920.15.