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21 August, 08:46

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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  1. 21 August, 08:52
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    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
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