## Answers

Current Price is the sum of the Present Values of |

1. all future coupons on the bond ,till maturity |

2. Face value to be received at maturity |

both discounted at the market interest rate which is the yield on the bond |

based on which the investor will fix the price(as above) |

So, |

Current price/PV=(Pmt.*(1-(1+r)^-n)/r)+(FV/(1+r)^n) |

where , |

Pmt.=Annual coupon payment,ie. 1000*5%=50 ; |

r=Market interest rate or Yield or Yield to maturity, ie. 5.5% or 0.055 |

n= No.of coupon -periods still pending to maturity, ie. 14 |

FV= Face Value,ie. 1000 |

Substituting the numerical values in the above formula, |

Current price/PV=(50*(1-(1+0.055)^-14)/0.055)+(1000/(1+0.055)^14)= |

952.05 |

So, |

ANSWER: b. $ 952.05 |

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