Question

Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8.5%.The bonds have a yield to maturity of 12%. What is the current market price of these bonds? Round your answer to the nearest cent.

Answer 1

for solving this problem we can use the YTM equation. That is,

Here given the yield to maturity is 12% or 0.12

C is annual interest rate 8.5% of $1000 is 85

M is the par value, which is $1000

P is the price of Bonds, which needs to be determined

n is the number of years, that is 5,

substitute this value in to the YTM equation, then

Then,

So the market price is $865.38