Suppose a Treasury bond will mature in 4 years. If the bond pays a coupon of $425 per year and will make a final par value payment of $10,000 at maturity, what is its price if the relevant market interest rate is 4%?
What will be an ideal response?
Bond price = [$425 / (1 + 0.04)] + [$425 / (1 + 0.04)2] + [$425 / (1 + 0.04)3] + [$425 / (1 + 0.04)4] + [$10,000 / (1 + 0.04)4] = $10,090.75
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