A 25-Year, $1,000 Par Value Bond Has an 8

question 92

Multiple Choice

A 25-year, $1,000 par value bond has an 8.5% annual coupon.The bond currently sells for $875.If the yield to maturity remains at its current rate, what will the price be 5 years from now?

• A) $839.31
• B) $860.83
• C) $882.90
• D) $904.97
• E) $927.60

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Definitions:

Effective Interest Method

An accounting practice used to amortize bond premiums or discounts over the life of the bond in a way that reflects a constant rate of interest.

Straight-Line Method

A depreciation method that allocates an equal amount of the asset's cost to each year of the asset's useful life.

Issuance Price

The price at which shares or bonds are sold to the public for the first time.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, assessing the value today of an amount to be received in the future.