A 7 percent coupon bond has a face value of $1,000 and pays interest annually. The current yield is 6.8 percent. What is the current price of this bond?

The correct answer is $1,029.41.

Explanation:

According to the scenario, the given data are as follows:

Coupon bond = 7%

Face value = $1,000

Current yield = 6.8%

So, we can calculate the current price of this bond by using following formula:

Current price = Annual cash flows / Current yield

Where, Annual cash flow = Face value * Coupon bond

= $1,000 * 7%

= $70

So, by putting the above value, we have

Current price = 70 / 6.8%

= 70 / 0.068

= $1,029.41

Hence, the current price of this bond is $1,029.41.