What is the price of a $1,000 par 9 year, annual bond with a 8.1% coupon rate and a yield to maturity of 6.3%? (Show your answer to nearest cent with no comma. For example $1,378.565 is entered as 1378.57)

Price of the Bond is $1,120.85

Explanation:

Coupon payment = 1000 x 8.1% = $81

Number of years = n = 9 years

Yield to maturity = 6.3%

Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula:

Price of the Bond = C x [ (1 - (1 + r) ^-n) / r ] + [ F / (1 + r) ^n ]

Price of the Bond = $81 x [ (1 - (1 + 6.3%) ^-9) / 6.3% ] + [ $1,000 / (1 + 6.3%) ^9 ]

Price of the Bond = $81 x [ (1 - (1.063) ^-9) / 0.063 ] + [ $1,000 / (1.063) ^9 ]

Price of the Bond = $543.82 + $577.03

Price of the Bond = $1,120.85