question archive What is the current price of a 2-year bond with a nominal value of 1
What is the current price of a 2-year bond with a nominal value of 1
Subject:FinancePrice:2.86 Bought9
What is the current price of a 2-year bond with a nominal value of 1.000 TL when the market interest rate is 10%?
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Answer:
Current price of a bond is the present value of future cash inflows.
Cash flows are discounted using market interest rate i.e. 10% in the given question.
In the given question no coupon percentage is mentioned therefore investor will receive only 1000 TL at the end of 2 years.
Therefore Price of bond = 1000 / (1+r)2
= 1000/ (1+0.10)2
= 1000 / 1.21
= 826.45
