Given a required rate of return of 10%, what is the present value of the coupon payments on a 10-year bond with coupon payments of $100 every six months (for a total of 20 payments)?
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A. B. C. D. E.Explanation
The value of the coupon payments can be thought of as the value of an annuity for 20 periods with a rate of return of 5% (half of 10%) for each period. Using appendix C in the book by Reilly & Brown, the present value is equal to $100 x 12.4622 = $1,246.22.