Asked by Carley Hirsch on Jul 18, 2024
Verified
J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 7%. If the bond has a life of 30 years, pays annual coupons, and the yield to maturity is 6.8%, what is the present value of the bond's face value?
A) $138.95
B) $241.15
C) $886.37
D) $1,000.00
E) $1,025.32
Face Value
The nominal or original value printed on a security or financial instrument, such as a bond or stock certificate, indicating its worth at issuance.
Coupon Rate
The yearly interest yield on a bond, shown as a percentage of its nominal value, disbursed from the date of issuance to the date it matures.
Present Value
A calculation that determines the current value of an amount of money to be received in the future, discounted at a specific interest rate.
- Ascertain the market rates of bonds utilizing their coupon rates, book values, maturity interest rates, and termination dates.
Verified Answer
AG
Angel GarciaJul 21, 2024
Final Answer :
A
Explanation :
The present value of the bond's face value is calculated using the formula for the present value of a single sum, which is PV = FV / (1 + r)^n, where FV is the face value ($1,000), r is the yield to maturity (6.8% or 0.068), and n is the number of periods (30 years). Plugging in the values, we get PV = $1,000 / (1 + 0.068)^30 = $138.95.
Learning Objectives
- Ascertain the market rates of bonds utilizing their coupon rates, book values, maturity interest rates, and termination dates.