Question

Orlando Inc. offers a bond with a coupon of 6.5% with semiannual payments and a yield to maturity of 6.99%. The bonds mature in 8 years and have a par value of $1,000. Compute the market price of the bond.

a. $1,393.21.b. $1,024.05.c. $1,363.56.d. $970.36.e. $1,577.15.

Answer 1

d. $970.36

Step-by-step explanation:

The market price of the bond (Pv) can be calculated as follows :

Pmt = ($1,000 × 6.5%) ÷ 2 = $32.50

P/yr = 2

i = 6.99%

n = 8 × 2 = 16

Fv = $1,000

Pv = ?

Using a Financial calculator to enter the values as above, the market price of the bond (Pv) is $970.3583 or $970.36.