ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A $1, 000 par value bond makes annual coupon payment of $75. If it offers a yield to maturity of 7.5 percent, what is the price of the bond?
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$75
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$750
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$1000
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$1200
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Explanation:
Detailed explanation-1: -The coupon rate is $75/$1000 = 7.50%.
Detailed explanation-2: -The coupon rate of a bond is its interest rate, or the amount of money it pays the bondholder each year, expressed as a percentage of its par value. A bond with a $1, 000 par value and coupon rate of 5% pays $50 in interest each year until maturity.
Detailed explanation-3: -Answer and Explanation: The approximate yield to maturity is 9.43%.
Detailed explanation-4: -The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually.
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