Answered: A 7 percent coupon bond has a face…

A 7 percent coupon bond has a face value of $1000 and pays interest annually. The current yield is 6.8 percent. What is the current price of this bond?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 8P

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Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

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A 7 percent coupon bond has a face value of $1000
and pays interest annually. The current yield is 6.8
percent. What is the current price of this bond?

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