Final answer:
To calculate the market price of a bond, we need to determine the present value of the coupon payments and the par value. The market price is calculated using a formula that takes into account the coupon rate, yield to maturity, total periods until maturity, and the par value of the bond.
Step-by-step explanation:
The question pertains to calculating the market price of a bond given its coupon rate, yield to maturity, par value, and time to maturity. To determine the market price of a bond, one must account for the present value of all future cash flows (coupon payments) and the present value of the par value that will be repaid at maturity. The coupon payments constitute an annuity, and the face value is a lump sum that is discounted back to the present value.
The formula to calculate the price of a bond is:
Price of Bond = (C * [1 - (1 + r)^-n]/r) + (F / (1 + r)^n)
- C = Annual coupon payment
- r = Yield to maturity/number of periods per year
- n = Total number of periods until maturity
- F = Par value of the bond
In the context of our prompt, we are missing the coupon rate to entirely compute the market price. However, if we knew the coupon rate, we would substitute these values into the formula, making sure to align the periods per year of the coupon payment with the yield to maturity.