Question

Whatever, Inc., has a bond outstanding with a coupon rate of 5.74 percent and semiannual payments. The yield to maturity is 6.1 percent and the bond matures in 20 years. What is the market price if the bond has a par value of $1,000?

Multiple Choice

A. $960.20

B. $959.04

C. $958.73

D. $977.90

Answer 1

Information provided:

Par value= future value= $1,000

Yield to maturity= 6.10%/2= 3.05%

Coupon rate= 5.74%/2= 2.87%

Coupon payment= 0.0287*1,000= $28.70

Time= 20 years*2= 40 semi-annual periods

The current market price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

I/Y= 3.05

PMT= 28.70

N= 40

Press the CPT key and PV to compute the present value.

The value obtained is 958.73.

Therefore, the current market price of the bond is $958.73.

Hence, the answer is option c.

In case of any query, kindly comment on the solution.