Answer:
Price of bond = $1150.72 (Approx.)
Explanation:
Given:
Number of years 12 years
Per value = $1,000
Coupon rate = 10% = 0.1
Market rate = 8% = 0.08
Find:
Price of bond
Computation:
Coupon payment = 1,000 x 10%
Coupon payment = 100
Price of bond = [C/r][1 - 1/(1+r)ⁿ] + Per value/[(1+r)ⁿ]
Price of bond = [100/0.8][1 - 1/(1+0.8)¹²] + 1000/[(1+0.08)¹²]
Price of bond = [100/0.8][1 - 1/(1.8)¹²] + 1000/[(1.08)¹²]
Price of bond = $1150.72 (Approx.)
