Question

Callaghan Motors' bonds have 10 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 8%, and the yield to maturity is 9%. What is the bond's current market price? 7-2 YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10

Answer 1

market value = $935.83

Step-by-step explanation:

N = 10 years

par value = $1,000

coupon rate = 8%

coupon payment = $80

yield to maturity = 9%

current market price:

PV of face value = $1,000 / (1 + 9%)¹⁰ = $422.41

PV of coupon payments = $80 x 6.4177 (PVIFA, 9%, 10) = $513.42

market value = $935.83