Assume a bond has a coupon rate of 4%, par value of $1,000, and 14 years left to maturity.The bond indenture specifies semi-annual payments and the yield to maturity is 5.5%. What is the market price of the bond? (enter rounded to the nearest dollar without the dollar sign and a comma, such as 1000)
Coupon rate = 4%
Par value of bond = $ 1,000
Year to maturity = 14 years, 28 semi-annual
Interest payment = Semi-annually
Yield to maturity = 5.5%, for semi-annual = 2.75 %
Coupon rate = 4%, for semi annual = 2%
Coupon = $1000 * 2% = $ 20
Market price of bond = Par value * PVF (r, n) + Interest * PVIFA (r,n)
= $ 1000 * PVF ( 2.75% , 28) + $ 20 * PVIFA (2.75% , 28)
= $ 1000 * 0.467852 + $ 20 * 19.35083
= $ 467.8523 + $ 387.0165
= $ 854.8688
= $ 855
Market price of bond = $ 855
Assume a bond has a coupon rate of 4%, par value of $1,000, and 14 years...
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