Question

Madsen Motors's bonds have 14 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 7%, and the yield to maturity is 10%. What is the bond's current market price? Round your answer to the nearest cent.

Answer 1

Bond price= = $869.84

Step-by-step explanation:

Given data:

Face value (F)=$1000

Interest rate (i)=10%

Coupon rate (c)= 7% annually

No of year n = 14

we know that bond price is given as

`Bond price= C* (1-(1+r)^(-n))/(r)+(F)/((1+r)^n)</p><p>`

putting all value to get the desired value

`=  0.07 (1-(1+0.10)^(-14))/(0.10)+(1000)/((1+0.10)^14)`

= $869.84