Question

Oil Wells offers 5.65 percent coupon bonds with semiannual payments and a yield to maturity of 6.94 percent. The bonds mature in seven years. What is the market price per bond if the face value is $1,000?

Answer 1

The market price per bond if the face value is $1,000 is $975.93

Explanation:

Oil Wells offers 5.65 percent coupon bonds with semiannual payments (it is something that is paid twice each year) and a yield to maturity (it is the total return anticipated on a bond if the bond is held until it matures) of 6.94 percent. The bonds mature in seven years (at this time the issuer must redeem the bond by paying the principal or face value). What is the market price per bond if the face value (it is the amount printed on the bond) is $1,000?

A coupon bond or bearer bond or bond coupon is a debt obligation with coupons attached that represent semiannual interest payments.

The face value also referred to as the par value, stated value, maturity value, principal amount, and legal amount.

$Coupon bond payments = \frac{5.65 percent}{2} *1000 = dollar 28.25$

$Market price per bond = Coupon bond payments * [\frac{(1-\frac{1}{[1+\frac{0.0694}{2 } ] * 7*2} )}{\frac{0.0694}{2} } ] + \frac{1000}{[1+\frac{0.0694}{2}]*7*2 }$

$Market price per bond = 28.25 * 10.942 + 620.3$

$Market price per bond = 975.93$

Therefore the market price per bond if the face value is $1,000 is $975.93

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Answer 2

Answer:

$826.95

Explanation:

To determine the price of Oil Wells' bonds, we can use the following formula:

bond price = semiannual coupon x [(1 - {1 / [1 + (maturity yield / 2)](years × 2)}) / (.0694 / 2)] + face value / [1 + (maturity yield / 2)](years × 2)

Bond price = $28.25 × [(1 - {1 / [1 + (.0694 / 2)](7 × 2)}) / (.0694 / 2)] +       $1,000 / [1 + (.0694 / 2)](7 × 2)

Bond price = $757,92 + $69.03 = $826.95