Question

You are considering investing in a 20-year bond that has a coupon rate of 7% and a yield to maturity of 6.75%. The bond pays coupons annually. What is the fair price of the bond

Answer 1

Answer:

$1,027.01

Explanation:

We use the present value formula for this question. The attachment is shown below:

Given that,  

Assuming Future value = $1,000

Rate of interest = 6.75%

NPER = 20 years

PMT = $1,000 ×7% = $70

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the fair price of the bond is $1,027.01