A Government of Canada bond with a face value of $1,000, paying a 4% coupon semi-annually, matures in 5 years. If the current market interest rates for similar bonds are 3%, what is the approximate price of this bond today?

Question: A Government of Canada bond with a face value of $1,000, paying a 4% coupon semi-annually, matures in 5 years. If the current market interest rates for similar bonds are 3%, what is the approximate price of this bond today?

Answer options: ✅ $1,045.24

• $1,000.00
• $955.93
• $1,023.45

Correct answer: $1,045.24

Explanation: The bond's price will be the present value of its future cash flows (coupon payments and face value) discounted at the market interest rate. Since the coupon rate (4%) is higher than the market yield (3%), the bond will trade at a premium.