Final answer:
To calculate the bond price, we need to use the present value formula. The formula takes into account the coupon payments and the face value of the bond. In this case, the bond has a semiannual coupon rate of 14% and a yield to maturity of 16%. Using the formula, the bond price is calculated to be $785.97.
Step-by-step explanation:
To calculate the bond price, we need to use the present value formula. The formula is:
Bond Price = (Coupon Payment / (1 + Yield to Maturity /2) + Coupon Payment / (1 + Yield to Maturity / 2)^2 + .... + Coupon Payment / (1 + Yield to Maturity / 2)^n) + Face Value / (1 + Yield to Maturity / 2)^n, where n is the number of periods until maturity.
In this case, the bond has a semiannual coupon rate of 14%, which means the coupon payment is $70. The yield to maturity is quoted at 16% and the bond matures in seven years.
Let's calculate the bond price using the formula:
- (70 / (1 + 16% / 2)) + (70 / (1 + 16% / 2)^2) + (70 / (1 + 16% / 2)^3) + (70 / (1 + 16% / 2)^4) + (70 / (1 + 16% / 2)^5) + (70 / (1 + 16% / 2)^6) + (70 / (1 + 16% / 2)^7) = $449.24
- 1000 / (1 + 16% / 2)^7 = $336.73
- Bond Price = $449.24 + $336.73 = $785.97
Therefore, the bond price is $785.97.