Question

A bond with a face value of $1,000 has and 9.29 percent coupon and pays interest semiannually. The current yield is 7.77 percent. What is the price of the bond?

Answer 1

The price of the bond is $1,195.62

Step-by-step explanation:

Current yield is the ratio of coupon payment of a bond to its current market price. It is calculated by using coupon payment and the current market value of the bond.

Using following formula of current yield we can calculate the price of the bond

Current Yield = Annual Coupon Payment / Current Market Price

Where

Coupon Payment = $1,000 x 9.29% = $92.9

Current Yield = 7.77%

Placing values in te formula

7.77% = $92.9 / Market value of the bond

Market value of bond = $92.90 / 7.77%

Market value of bond = $1,195.62