Final answer:
The current price of Blue Jazz, Inc.'s 9 percent coupon bonds with 16 years left to maturity and an annual YTM of 6.9 percent is approximately $1190.46.
Step-by-step explanation:
The current price of a Blue Jazz, Inc.'s 9 percent coupon bond with 16 years left to maturity can be calculated using the formula for the present value of a bond which includes the present value of annuity (coupon payments) and the present value of a lump sum (face value of the bond). The formula is:
Price = (C * (1 - (1 + r)^-n) / r) + (F / (1 + r)^n)
Where:
- C is the annual coupon payment (9% of $1000), which is $90
- r is the yield to maturity (YTM), which is 6.9%
- n is the number of years to maturity, which is 16
- F is the face value of the bond, which is $1000
Plugging in the numbers:
Price = ($90 * (1 - (1 + 0.069)^-16) / 0.069) + ($1000 / (1 + 0.069)^16)
Calculating this gives us a price of approximately $1190.46 (rounded to two decimal places)