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A 7 percent coupon bond has a face value of $1,000 and pays interest annually. The current yield is 6.8 percent. What is the current price of this bond?

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Answers (1)
  1. Today, 07:57
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    The correct answer is $1,029.41.

    Explanation:

    According to the scenario, the given data are as follows:

    Coupon bond = 7%

    Face value = $1,000

    Current yield = 6.8%

    So, we can calculate the current price of this bond by using following formula:

    Current price = Annual cash flows / Current yield

    Where, Annual cash flow = Face value * Coupon bond

    = $1,000 * 7%

    = $70

    So, by putting the above value, we have

    Current price = 70 / 6.8%

    = 70 / 0.068

    = $1,029.41

    Hence, the current price of this bond is $1,029.41.
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