Question

Grand Adventure Properties offers a 9.4 percent coupon bond with annual payments. The yield to maturity is 11.2 percent and the maturity date is 11 years from today. What is the market price of this bond if the face value is $1,000?

Answer 1

$889.28

Step-by-step explanation:

The price of the bond can be computed using the below formula for bond price calculation:

bond price=face value/(1+r)^n+coupon*(1-(1+r)^-n)/r

face value is $1000

r is the yield to maturity which is 11.2%

coupon=face value*coupon rate=1000*9.4%=94

n is the number of coupons the bond would pay which is 11 coupons over 11 years

bond price=1000/(1+11.2%)^11+94*(1-(1+11.2%)^-11)/11.2%

bond price=$889.28