Question

Whatever, Inc., has a bond outstanding with a coupon rate of 5.73 percent and semiannual payments. The yield to maturity is 6.7 percent and the bond matures in 23 years. What is the market price if the bond has a par value of $1,000?

a)889.56

b)904.76

c)887.02

d)887.80

e)888.39

Answer 1

The market price if the bond has a par value of $1,000 is $887.02 . The right answer is c.

Step-by-step explanation:

In order to calculate the market price if the bond has a par value of $1,000, we need first to make the following calculations according to given data:

Coupon Rate = 5.73/2 = 2.865%

Interest = 1000 * 2.865% = $ 28.65

YTM = 6.7/2 = 3.35%

Time = 23*2 = 46 periods

Therefore, the market price would be calculated using the following formula:

Price of Bond = Interest * PVIFA(3.35%,46) + Par Value * PVIF(3.35%,46)

= $28.65 * 23.2942 + 1000 * 0.2196

= $667.38 + $219.64

Hence, Price of Bond = $887.02

The market price if the bond has a par value of $1,000 is $887.02