Answer: Current price of bond = $1069.46
Explanation:
Given that,
Par value of bond = $1,000
Annual coupon rate = 8%
Present annual yields on similar bonds = 6%
Maturity Period = 4 years
Current Price of bond = [tex]coupon[\frac{1 - (1+r)^{-t} }{r}] + \frac{Face\ Value}{(1+r)^{t} }[/tex]
= [tex]80[\frac{1 - (1+0.06)^{-4} }{0.06}] + \frac{1000}{(1+0.06)^{4} }[/tex]
= [tex]80[\frac{0.208}{0.06}]+ 792.14[/tex]
= 277.32 + 792.14
= $1069.46
