Question

Wine and Roses, Inc. offers a 6.0 percent coupon bond with semiannual payments and a yield to maturity of 6.91 percent. The bonds mature in 12 years. What is the market price of a $1,000 face value bond?

$1,410.62
$1,442.55
$926.59
$1,023.89
$1,484.04

Answer 1

$926.59

Step-by-step explanation:

C =Annual coupon Payment = $1,000 x 6% = $60

YTM = 6.91% = 0.0691

t = Number of year = 12 years

m = number of period in one year = semiannual = 2

Face value = $1,000

Bond's Market Price = (C / YTM)x[1 - ( 1 + YTM/m )^-tm] + [ FV x ( 1 + YTM/m)^-tm]

Bond's Market Price = (60 / 0.0691)x[1 - ( 1 + 0.0691/2 )^-12x2] + [ $1,000 x ( 1 + 0.0691/2)^-12x2]

Bond's Market Price = $868.31 x [1 - ( 1.03455 )^-24] + [ $1,000 x (1.03455)^-24]

Bond's Market Price = $484.04 + 442.55 = $926.59