Asked by Sagar Rajput on Jul 27, 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 will the bond sell for?
A) $975.18
B) $1,000.00
C) $1,025.32
D) $1,087.25
E) $1,111.81
Yield To Maturity
Yield to maturity is the total return anticipated on a bond if the bond is held until the end of its lifetime.
Coupon Rate
The interest rate stated on a bond or other fixed-income security, representing the annual interest payment divided by the bond's face value.
- Calculate the trade prices and interest yields of bonds within diverse contexts.
Verified Answer
ZK
Zybrea KnightAug 02, 2024
Final Answer :
C
Explanation :
The bond will sell for more than its face value because its coupon rate is higher than its yield to maturity. The price of the bond can be calculated using the present value of an annuity formula for the coupon payments and the present value formula for the face value. The correct calculation results in a price of $1,025.32.
Learning Objectives
- Calculate the trade prices and interest yields of bonds within diverse contexts.
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