Coupon bond was originally issued

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Reference no: EM131944519

Suppose that our one-year 10% coupon bond was originally issued as a 20-year-maturity bond 19 years ago. At that time, the yield curve as flat at 10% per year. Now the bond has one year remaining before it matures, and the interest rate on one-year bonds is 5% per year.

Although the 10% coupon bond was issued at par ($1000), its market price will now be $1047.62.

How does the market price come out to be $1047.62.

Reference no: EM131944519

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