High School

Consider a discount bond that matures in one year's time. It has a face value of $140,000 and a yield to maturity of 6 percent. Which figure is closest to its current market price?

A. $139,624
B. $133,589
C. $136,913
D. $132,075

Answer :

A discount bond with a face value of $140,000 and a yield to maturity of 6% is analyzed to determine its current market price. the figure that is closest to the bond's current market price is $132,075.

The current market price of a bond can be calculated using the present value formula, which discounts the future cash flows (the face value) at the yield to maturity (YTM) rate.

In this case, the face value of the bond is $140,000, and the YTM is 6%. To calculate the current market price, we can use the formula:

Current Market Price = Face Value / (1 + YTM)^n

where n represents the number of years until maturity.

Substituting the values, we find:

Current Market Price = $140,000 / (1 + 0.06)^1

Calculating the expression inside the parentheses:

Current Market Price = $140,000 / 1.06

Current Market Price ≈ $132,075.47

Among the provided options, $132,075 is the figure closest to the bond's current market price. Therefore, the answer is d) $132,075.

To learn more about discount bond , refer:

brainly.com/question/29689720

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