Answer: PV = 872
Explanation:
Given:
Years to maturity (n) = 10
Coupon rate (r) = 7%
Let's assume the annual payments to be $1000
∴ Annual coupon = Annual payments × Coupon rate (r)
= $1,000 × 0.07
= $70
Interest rate (i) = 9%
We'll compute the present value using the following formula:
Present Value = [tex]\frac{Annual\ payment}{(1 + r)^{n} }[/tex]
PV = 871.65
