Answer to Question #122207 in Macroeconomics for Joby George

Question

Consider a bond with coupon of $80 and a face value of $1000 due to mature in one year's time. The current interest rate is 5%. The current price of this bond is?

Answer 1

Par value of the bond $1,000

Coupon $80

Maturity period 1 year

Interest rate 5%

$BondPrice=∑(C/(1+YTM)^n)+P/(1+i)^n$

$=(80/(1+0.05)^1)+(1000/(1+0.05)^1)$

$=(80/(1+0.05)1)+(1000/(1+0.05)1)$

=$1,029