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? Select one:
a. $936.48
b. $913.48
c. $902.60
d. $929.42
e. $949.70

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 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?

A coupon bond  is a debt obligation with coupons attached that represent semiannual interest payments. Semiannual is the payment that is paid twice each year, typically once every six months.

Bond valuation includes the present value of the bond's future interest payments, known as cash flow, and the bond's value upon maturity known as its face value or par value. The face value also referred to as the par value, stated value, maturity value, principal amount, and legal amount.

Yield to maturity (the discount rate which sum of all future cash flows from the bond) is 6.94 percent

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

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

Learn more about the market price per bond brainly.com/question/13676962

#LearnWithBrainly

Answer 2

Answer:

option (d) $929.42

Explanation:

Data provided in the question:

Coupon bonds payments = 5.65% semiannual

Yield to maturity, r = 6.94% = 0.0694

Face value = $1000

Now,

Coupon bond payments = $\frac{5.65\%}{2}$ × $1,000

= $28.25

market price per bond = Payment × $\frac{(1-\frac{1}{(1+\frac{r}{2})^{2n}})}{\frac{r}{2}}$ + $\frac{\textup{face value}}{(1+\frac{r}{2})^{2n}}$

Here,

n is the maturity period and 2n is due to the semiannual payments

Thus,

market price per bond = $28.25 × $\frac{(1-\frac{1}{(1+\frac{0.0694}{2})^{2\times7}})}{\frac{0.0694}{2}}$ + $\frac{\textup{1,000}}{(1+\frac{0.0694}{2})^{2\times7}}$

= $28.25 × 10.942 + 620.3

= $929.42

Hence,

The answer is option (d) $929.42