Question

Werden drilling offers 5.5 percent coupon bonds with semiannual payments and a yield to maturity of 7 percent. the bonds mature in 10 years. what is the market price per bond if the face value is $1,000?

A. $893.41
B. $894.65
C. $937.63
D. $671.36
E. $1,114.20

Answer 1

Coupon rate is 5.5 percent, the yield to maturity is 7 percent, and the bonds mature in 10 years then market price per bond is $937.63. Therefore correct option is C

Step-by-step explanation:

To calculate the market price per bond, we need to use the formula for present value of a bond:

Market Price = (Coupon Payment / (1 + Yield/2)^2) + (Coupon Payment / (1 + Yield/2)^4) + ... + (Coupon Payment + Face Value) / (1 + Yield/2)^20

Given that the coupon rate is 5.5 percent, the yield to maturity is 7 percent, and the bonds mature in 10 years, we can calculate the market price as follows:

Market Price = (55 / (1.035)^2) + (55 / (1.035)^4) + ... + (55 + 1000) / (1.035)^20

This calculation gives us a market price per bond of $937.63, so the correct answer is C. $937.63.