A 5-year Canada Bond with a face value of $1,000 and a coupon rate of 4.00% paid semi-annually is currently trading at a yield to maturity (YTM) of 3.50%. What is the approximate present value (dirty price) of this bond?

Question: A 5-year Canada Bond with a face value of $1,000 and a coupon rate of 4.00% paid semi-annually is currently trading at a yield to maturity (YTM) of 3.50%. What is the approximate present value (dirty price) of this bond?

Answer options: ✅ $1,021.84

• $1,018.67
• $1,000.00
• $982.55

Correct answer: $1,021.84

Explanation: Since the bond's coupon rate (4.00%) is higher than its yield to maturity (3.50%), the bond will trade at a premium. Calculating the present value of 10 semi-annual coupon payments of $20 and the $1,000 principal payment at a discount rate of 1.75% per period results in a price greater than par.