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Johnson Motors' bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon rate is 8 percent. The bonds have a yield to maturity of 9 percent. What is the current market price of these bonds?

Respuesta :

jepessoa

Answer:

$935.83

Explanation:

market price of the bonds:

PV of face value = $1,000 / (1 + 9%)¹⁰ = $422.41

PV of coupon payments = $80 x 6.4177 (PV annuity factor, 9%, 10 periods) = $513.42

current market price = $935.83

Since the market rate is higher than the coupon rate, the bonds will be sold at a discount.

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