A Government of Canada bond with a face value of $1,000 matures in 5 years, pays a 3% semi-annual coupon, and is currently trading at a yield to maturity (YTM) of 2.5%. What is the approximate current market price of this bond?

Question: A Government of Canada bond with a face value of $1,000 matures in 5 years, pays a 3% semi-annual coupon, and is currently trading at a yield to maturity (YTM) of 2.5%. What is the approximate current market price of this bond?

Answer options: ✅ $1,023.23

• $988.50
• $1,000.00
• $1,012.50

Correct answer: $1,023.23

Explanation: Since the bond's yield to maturity (2.5%) is lower than its coupon rate (3%), the bond will trade at a premium. Calculating the present value of the future cash flows (10 semi-annual coupons of $15 and a principal repayment of $1,000) discounted at 2.5% YTM provides the current market price of approximately $1,023.23.