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Wine and Roses, Inc., offers a bond with a coupon of 8.0 percent with semiannual payments and a yield to maturity of 8.66 percent. The bonds mature in 16 years. What is the market price of a $1,000 face value bond? pmt

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hyderali230

Answer:

The market price of a $1,000 face value bond is $944.

Explanation:

Market Value of Bond is calculated by following formula.

Coupon Payment = $1000 x 8% = $80

r = YTM = 8.66% = 0.0866

Face value = $1,000

n = number of periods = 16 yeasr

P = C [ (1 - ( 1 + r )^-n ) / r ] + [ F x ( 1 + r )^-n]

P = $80 [ (1 - ( 1 + 0.0866 )^-16 ) / 0.0866 ] + [ $1,000 x ( 1 + 0.0866 )^-16]

P = $80 [ (1 - ( 1 + 0.0866 )^-16 ) / 0.0866 ] + [ $1,000 x ( 1 + 0.0866 )^-16]

P = $679.19 + $264.78

P = $943.97