Certainly! Let's solve this problem step-by-step to find the current market value of the bond. Given: - Coupon rate = 6% = 0.06 - Current market interest rate = 4% = 0.04 - Years to maturity = 20 - Par value = $1,000 - Bond was issued 3 years ago (this doesn't affect our calculation as we're concerned with the remaining time to maturity) Step 1: Calculate the annual coupon payment Annual coupon payment = Coupon rate Par value Annual coupon payment = 0.06 $1,000 = $60 Step 2: Set up the bond valuation formula Bond Value = Present Value of Coupons + Present Value of Par Value Step 3: Calculate the Present Value of Coupons PV of Coupons = PMT [1 - (1 + r)^-n] / r Where: PMT = Annual coupon payment r = Current market interest rate n = Number of years to maturity PV of Coupons = $60 [1 - (1 + 0.04)^-20] / 0.04 Calculator input: 60 (1 - (1 + 0.04)^-20) 0.04 = PV of Coupons = $816.33 Step 4: Calculate the Present Value of Par Value PV of Par Value = Par Value / (1 + r)^n PV of Par Value = $1,000 / (1 + 0.04)^20 Calculator input: 1000 (1 + 0.04)^20 = PV of Par Value = $456.39 Step 5: Sum the Present Values to get the Bond Value Bond Value = PV of Coupons + PV of Par Value Bond Value = $816.33 + $456.39 = $1,272.72 Final Answer: The current market value of the bond is $1,272.72. This bond is selling at a premium (above par value) because its coupon rate (6%) is higher than the current market interest rate (4%). Investors are willing to pay more