Grand Adventure Properties offers a 7 percent coupon bond with annual payments. The yield to maturity is 5.85 percent and the maturity date is 8 years from today. What is the market price of this bond if the face value is $1,000?

Question

Business

Whitehead

11 February, 20:24

Grand Adventure Properties offers a 7 percent coupon bond with annual payments. The yield to maturity is 5.85 percent and the maturity date is 8 years from today. What is the market price of this bond if the face value is $1,000?

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Answers (1)

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Wendy Hale · Answer 1

The market price of this bond is: $1,069.8.

Explanation:

To calculate the market price of the bond, we have to use the following formula:

Bond Price = C * ((1 - (1+r) ^-n) / r) + (F / (1+r) ^n)

C = periodic coupon payments: $1,000*7% = $70

F = Face value: $1,000

r = Yield to maturity: 5.85%

n = No. of periods until maturity: 8 years

Bond Price = 70 * ((1 - (1+0.0585) ^-8) / 0.0585) + (1,000 / (1+0.0585) ^8)

Bond Price = 70 * ((1-0.635) / 0.0585) + (1,000/1.58)

Bond Price = 70*6.24+633

Bond Price = 436.8+633

Bond Price = 1,069.8