Question

Whatever, Inc., has a bond outstanding with a coupon rate of 5.84 percent and semiannual payments. The yield to maturity is 6.1 percent and the bond matures in 25 years. What is the market price if the bond has a par value of $1,000

Answer 1

The answer is $966.87

Step-by-step explanation:

It is a semiannual paying coupon.

N(Number of periods) = 50 years ( 25 years x 2)

I/Y(Yield to maturity) = 3.05percent( 6.1 percent ÷ 2)

PV(present value or market price) = ?

PMT( coupon payment) = $29.2 ( [5.84 percent÷ 2] x $1,000)

FV( Future value or par value) = $1,000.

We are using a Financial calculator for this.

N= 50; I/Y = 3.05; PMT = 29.2; FV= $1,000; CPT PV= -966.87

Therefore, the market price of the bond is $966.87