Question

Madsen Motors's bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 6.5%; and the yield to maturity is 5%. What is the bond's current market price? Round your answer to the nearest cent.

Answer 1

Bonds are financial instruments that provide fixed returns to its holders. Bonds actually have a nature of debt with a fixed interest rate and a maturity, also known as Plain Vanilla Bond.

Bond Price can be calculated as:

Where C denotes the Coupon amount or $ 1,000*6.5% = $ 65

r denotes the Yield to Maturity or 0.05

n denotes the Time to Maturity or 10

Substituting the values, calculate the Price:

Thus, the current Price of the bond is $ 1,115.83 or $ 1,116