Calculate the closing price of a bond that has a face value of $1,000 and is closing at 101 7/8% of the face value.
A. $1,001.78
B. $1,000.78
C. $1,018.75
D. $1,000.75
To calculate the closing price of the bond, you need to multiply the face value of the bond by the closing percentage. Here's how to do it step by step:
1. Convert the closing percentage to a decimal by dividing it by 100. In this case, 101 7/8% can be converted to decimal form as follows:
101 7/8% = 101.875 / 100 = 1.01875
2. Multiply the face value of the bond ($1,000) by the decimal form of the closing percentage (1.01875):
$1,000 * 1.01875 = $1,018.75
Therefore, the closing price of the bond is $1,018.75. So, the correct answer is C. $1,018.75.