A4) 6. A bond has a face value of $1,000, a coupon rate of 7%, and maturity in twoyears (the first coupon payment is one year from now). The bond's yield tomaturity is 11%. What is the bond's price?

The price of bond is calculated with the help of following formula Price of Bond = Present Value of…

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years (the first coupon payment is one year from now). The bond's yield to maturity is 11%. What is the bond's price?

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

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

A4)

6. A bond has a face value of $1,000, a coupon rate of 7%, and maturity in two
years (the first coupon payment is one year from now). The bond's yield to
maturity is 11%. What is the bond's price?

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