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20 May, 09:55

Popular motors bonds have 8 years remaining to maturity. Interest is paid annually, they have $1000 par value, the coupon interest rate is 5% and the yield to maturity is 7%. What is the bonds current market price

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  1. 20 May, 11:53
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    The market price will be $880.57

    Explanation:

    Interest amount for each year till 8 years will be $50 (1000*5%). Interest rate will be applied on par value. The cashflows of 8 years on account of interest and principal amount of $1000 would be discounted at 7%.

    Working:

    P. V of interest by using annuity formula:

    $50 * (1 - (1+7%) ^-8) / 7% = $298.57

    P. V of principal amount : $1000 * (1+7%) ^-8 = $582

    Current price of bond = $298.57 + $582 = $880.57
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Home » Business » Popular motors bonds have 8 years remaining to maturity. Interest is paid annually, they have $1000 par value, the coupon interest rate is 5% and the yield to maturity is 7%. What is the bonds current market price
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