Question

A 5.5 percent $1,000 bond matures in seven years, pays interest semiannually, and has a yield to maturity of 6.23 percent. what is the current market price of the bond?

Answer 1

We are given with
rb = 5.5%
ib = 5.5%/2 = 2.75%
F = 1000
n = 7 x 2 = 14 semi-annuals
i = 6.23%

The formula to use is
P = F ib [1-(1/(1 + i)^n]/i + F / (1 + i)^n
Substitute the given values and solve for P.