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21 April, 03:38

A 5.5 percent $1,000 bond matures in seven years, pays interest semiannually, and has a yield to maturity of 6.23 percent. what is the current market price of the bond?

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  1. 21 April, 03:53
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    We are given with

    rb = 5.5%

    ib = 5.5%/2 = 2.75%

    F = 1000

    n = 7 x 2 = 14 semi-annuals

    i = 6.23%

    The formula to use is

    P = F ib [1 - (1 / (1 + i) ^n]/i + F / (1 + i) ^n

    Substitute the given values and solve for P.
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