Question

Oil Well Supply offers 6.8 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent. The bonds mature in 6 years. What is the market price per bond if the face value is $1,000?

Answer 1

Bond Price​= $958.32

Step-by-step explanation:

Giving the following information:

Face value= $1,000

Cupon= (0.068/2)*1,000= $34

Number of periods= 6/2= 12 semesters

YTM= 0.0768/2= 0.0384

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 34*{[1 - (1.0384^-12)] / 0.0384} + [1,000/(1.0384^12)]

Bond Price​= 322.08 + 636.24

Bond Price​= $958.32