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3Ts Corp. will start selling 10-year bonds today. The bonds have semiannual coupon payments, an annual coupon rate of 8%, and a par value of $1,000. The yield to maturity (YTM) for this bond is expected to be 10%. What is the price of the bond today? A. 770.60 B. 811.67 C. 1,000.00 D. 877.11 E. 875.38

Sagot :

Answer:

E. 875.38

Explanation:

The computation of the price of the bond today is as follows

Given that

Future value = $1,000

PMT = $1,000 ×8% ÷2 = $40

NPER = 10 × 2 = 20

RATE = 10% ÷ 2 = 5%

The formula is given below:

= -PV(RATE;NPER;PMT;FV;TYPE)

After applying the above formula the price of the bond today is $875.38

Here the present value formula is applied to determine the same

Therefore the last option i.e. E is correct

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