Final answer:
To calculate the price of the bond, use the formula: Price of the bond = (Coupon payment / Yield) * (1 - (1 / (1 + Yield)^n)) + (Par value / (1 + Yield)^n). The coupon payment is $40 (($1,000 * 4%) / 2), the yield is 7.9%, and n is the number of periods until maturity.
Step-by-step explanation:
To calculate the price of the bond, we need to understand the relationship between bond prices and yields. The current yield of 7.9% indicates the annual interest payments relative to the current price. The formula to calculate the price of the bond is:
Price of the bond = (Coupon payment / Yield) * (1 - (1 / (1 + Yield)^n)) + (Par value / (1 + Yield)^n)
In this case, the coupon payment is $40 (($1,000 * 4%) / 2), the yield is 7.9%, and n is the number of periods until maturity. You will need to know the number of periods to calculate the price accurately.