Question

Oil Well Supply offers a 8 percent coupon bond with semiannual payments and a yield to maturity of 8.73 percent. The bonds mature in 9 years. What is the market price per bond if the face value is $1,000?

Answer 1

Market price today $955.1347

Step-by-step explanation:

To know the current market price we will calculate the present value ofthe cuopon payment and the maturity at the yield to maturity rate of 8.73%

Present value of the annuity

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

Cupon Payment: 1,000 face value x 8% / 2 payment per year = 40

time = 9 years x 2 payment per year = 18

rate = 8.73% = 0.0873 = 0.0873/2 = 0.04365

`40 * (1-(1+0.04365)^(-18) )/(0.04365) = PV\\`

PV $491.6747

Present value of the maturity

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity = face value = 1,000.00

time 18.00

rate 0.04365

`(1000)/((1 + 0.04365)^(18) ) = PV`

PV 463.46

Now we add both together to get the present value of the bond

PV c $491.6747

PV m $463.4599

Total $955.1347