Question

A 5.5 percent coupon bond has a face value of $1,000 and a current yield of 5.64 percent. What is the current market price? (Answer in dollars accurate to two decimal points. Enter only a number with decimal points. Do not inlcude any dollar symbols or other punctuation.)

Answer 1

The current market price of the bond with a 5.5 percent coupon rate and a current yield of 5.64% is $975.18, calculated by dividing the annual coupon payment by the current yield.

Step-by-step explanation:

To calculate the current market price of a bond with a 5.5 percent coupon and a current yield of 5.64 percent, you use the formula that relates the current yield to the annual coupon payment and the bond price.

The current yield is calculated as the annual coupon payment divided by the bond price. In this case, the bond has a face value of $1,000 and a coupon rate of 5.5 percent, which means the annual coupon payment is $1,000 * 5.5% = $55. Since we know the current yield is 5.64 percent, the bond price can be calculated as:

Current Yield = Annual Coupon Payment / Bond Price
Bond Price = Annual Coupon Payment / Current Yield
Bond Price = $55 / 0.0564
Bond Price = $975.18

Therefore, the current market price of the bond is $975.18.