Wine and Roses, Inc., offers a bond with a coupon of 7.0 percent with semiannual payments and a yield to maturity of 7.75 percent. The bonds mature in 14 years. What is the market price of a $1,000 face value bond?

Question

Christina Herrera

Business

26 January, 23:43

Wine and Roses, Inc., offers a bond with a coupon of 7.0 percent with semiannual payments and a yield to maturity of 7.75 percent. The bonds mature in 14 years. What is the market price of a $1,000 face value bond?

+2

Answers (1)

Know the Answer?

Yoselin · Answer 1

P = 9359.8

Explanation:

Given:

n = 14 YTM = 7.75% = 0.0775 F = 1000 Coupon rate = 7.0 percent = > Coupon payment is: 1000*7% = 70

As we know that, the formula to find out YTM is:

YTM = [C + (F-P/n) ] / (F + P) / 2

0.0775 = [ 70 + (1000 - P/14) ] / (1000+P) / 2

0.0775 (1000+P) / 2 = 70 + (1000 - P/14)

0.0775 (1000+P) = 140 + 2 (1000 - P/14)

P = 9359.8

So the price of the $1,000 face value bond is 9359.8