Question

19. A bond has 8 years to maturity, a 7 percent coupon, a $1,000 face value, and pays interest semi-annually. What is the bond's current price if the yield to maturity is 6.97 percent? A. $799.32 B. $848 16 C. $917.92 D. $1,005.46 E. None of the above.l

Answer 1

Information provided:

Face value = future value= $1,000

Time= 8 years*2= 16 semi-annual periods

Yield to maturity= 6.97%/2= 3.4850% per semi-annual period

Coupon rate= 7%/2= 3.50%

Coupon payment= 0.0350*1,000= $35

The current price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 16

I/Y= 3.4850

PMT= 35

Press the CPT key and PV to compute the present value.

The value obtained is 1001.82.

Therefore, the current price of the bond is $1001.82.

Hence, the answer is option e.

In case of any query, kindly comment on the solution.