Question

Roadside Markets has a 6.75% coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1000 and the yield to maturity is 7.6%? 8,

Answer 1

Face Value = $1,000

Annual Coupon Rate = 6.75%
Semiannual Coupon Rate = 3.375%
Semiannual Coupon = 3.375% * $1,000
Semiannual Coupon = $33.75

Annual YTM = 7.60%
Semiannual YTM = 3.80%

Time to Maturity = 10.50 years
Semiannual Period = 21

Market Price = $33.75 * PVIFA(3.80%, 21) + $1,000 * PVIF(3.80%, 21)
Market Price = $33.75 * (1 - (1/1.0380)^21) / 0.0380 + $1,000 / 1.0380^21
Market Price = $939.26

So, market price per bond is $939.26