Question

You just purchased a 15-year bond with an 10 percent annual coupon. The bond has a face value of $1,000 and a current yield of 10.75 percent. Assuming that the yield to maturity of 9.60 percent remains constant, what will be the price of the bond ten years from now? a. Less than $489 b. Between $489 and $996 c. Between $996.01 and $1080 Between $1080.01 and $1,200 e. Greater than $1,200

Answer 1

c. Between $996.01 and $1080

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В C 1 $1,000.00 Bond face value Annual coupon rate Yield to maturity Maturity (years) 2 3 10% 9.60% 4 5 15 6 10 years from now Years until maturity Price of bond at end of 10th year 7 8 $1,015.32 9 10 c. Between $996.01 and $1080 11 12 13 14 LC LC

Cell reference -

А В C D 1 Bond face value Annual coupon rate Yield to maturity Maturity (years) 2 1000 0.1 0.096 4 15 6 10 years from now: Years until maturity Price of bond at end of 10th year 7 =PV(C4,C8,-C3*C2,-C2,0) 9 10 c. Between $996.01 and $1080 11 12 13 14 15 st LO

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.