Question

Sheridan, Inc., has issued a three-year bond that pays a coupon rate of 7.0 percent. Coupon payments are made semiannually. Given the market rate of interest of 4.6 percent, what is the market value of the bond

Answer 1

$1,066.54

Step-by-step explanation:

Calculation to determine the market value of the bond

Using this formula

Market value of bond = Coupon payment per period * [1-(1+i)^-n]/i + par value/(1+i)^n

Where,

i = interest rate per period

n = number of periods

Let plug in the formula

Market value of bond = 7%/2 * [1-(1+0.046/2)^-3*2]/(0.046/2) + 1000/(1+0.046/2)^3.2

Market value of bond = 3.5% * [1-(1+0.023)^-6]/(0.023) + 1000/(1+0.023)^6

Market value of bond=$1,066.54

Therefore the market value of the bond will be $1,066.54