A $13,969 par value bond whose coupon rate is 4.4% is purchased. If the investment represents a current yield of 3.2%, c...

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A $13,969 par value bond whose coupon rate is 4.4% is purchased. If the investment represents a current yield of 3.2%, c...

A $13,969 par value bond whose coupon rate is 4.4% is purchased. If the investment represents a current yield of 3.2%, compute the bond's market price at the time of the purchase.

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Answer 1

Answer #1

Information provided:

Par value= future value= $13,969

Coupon rate= 4.4%

Coupon payment= 0.044*$13969= $6,146.36

Current yield= 3.2%

The current yield is calculated using the below formula:

Current Yield= Annual interest/Current price

0.032= $6,146.36/ Current price

Current price= $6,146.36/ 0.032

= $192,073.75.

Therefore, the bond’s market price is $192,073.75 at the time of purchase.

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Answer 2

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