wine and roses, inc offers a 7% coupon bond with semiannual payments and a yield
ID: 2730714 • Letter: W
Question
wine and roses, inc offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.77%. the bonds mature in 9 years. what is the market price of this bond? wine and roses, inc offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.77%. the bonds mature in 9 years. what is the market price of this bond? wine and roses, inc offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.77%. the bonds mature in 9 years. what is the market price of this bond?Explanation / Answer
Face value of bond = $1,000
Coupon rate = 7%
Semi-annual coupon amount = $1,000 * 7% *1/2 = $35
Yield to maturity (YTM) = 7.77%
Semi-annual YTM = 7.77%/2 = 3.885% = 0.03885
Remaining years to maturity = 9 years
Remaining half years to maturity = 9 years * 2 = 18
Market price of bond = Present value of remaining coupon payments + Present value of face value of bond
Present vlaue of annuity of equal amount = Annuity * {1-(1+r)-n}/r
Present value of remaining coupon payments = $35 * (1-1.03885-18)/0.03885 = $35*12.7785 = $447.25
Present value = Future value / (1+r)n
Present value of face value of bond = $1,000/1.0388518 = $1,000/1.9859 = $503.55
Market price of bond = $447.25 + $503.55 = $950.80
Market price as a percentage of face value = $950.80/$1,000 = 95.08%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.